This week we had the pleasure of having John Dimmer, a friend and former colleague of Mr. Fry's when they ran their business at Free Range Media, speak to our class about Funding for businesses. This was a very intriguing presentation as he covered many excellent topics such as Angel Investors (which Mr. Dimmer classified himself as), Venture Capitalists, Crowd Sourcing and having your own "skin in the game".
Mr. Dimmer gave me much to think about when it comes to how to get funding together to start a business. I think that most people (including myself) initially thought that you had to go get a loan from a bank and that was about your only option. But after John gave his presentation, he helped open my eyes to many ways to get funding that was otherwise a mystery. I liked how he provided real dollar figures to be expected from a Angel Investor (anywhere from 10k to 150k) and that you use this after you have gotten yourself some crowd sourcing dollars to help get the foundation started for your business. Crowd Sourcing is a strategy to get funding from friends, family and others that want to contribute smaller donations to help get you started. This can be done by social media such as kickstarter and is a new way of getting seed money to get off the ground.
Understanding the scale of your business is also key according to Mr. Dimmer. He made a point that made a lot of sense to me, that you have to have "Skin in the Game". This means that you need to have your own capital invested in your own venture, but you shouldn't be "all in", as that can be detrimental to your goals and success. The amount that you put into the venture should be relative to the businesses size and goals, but not so much that you are drowning in debt and if you lose the business you would be on the street living in a cardboard box. I also liked how he gave the example of the veterans widow that had a lot of money saved, but only wanted to put $2,000 into her business and expected John to put in $100,000. That was not enough "skin" and clearly shows a lack of commitment to the cause and is problematic to an investor like him.
I never knew that Venture Capitalists put in so much money into a business (6 million +) and that they want to have large investments in a company that they think will succeed, and that they are on the end of their funding quest. I realize from his presentation that although this would sound great to most people, you have to understand that V.C.'s wouldnt just invest this money and let you go about your business as usual. They would want to start making changes to have their own management involved in your operations, which in itself can be not only uncomfortable, but could put you completely out of the picture if they decide you are no longer the right person for your own business. So getting this type of funding comes with its own catches or tricks that can cause you to be not only out of management, but also seeing someone else taking your company to the next level without you.
John really did a great job of giving us a overview of funding sources, and how to understand the stages involved with how and when to seek such investors, and what to expect as far as the investments. The pitfalls of such investments are something that any new entrepreneur should understand and be cognizant of. There are great benefits of investors, and using them in the proper scope of your venture and utilizing equity versus interest rates is a good lesson that I think helped everyone in our class.
Thanks John for a great presentation! We are all much wiser on funding sources, and will most likely use your experiences to help us make wise decisions on this important area of our businesses.
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