How did you finance your business?

[Shaun @ Tru6]

In the past few years, we've financed the company with personal savings, credit cards, bank line of credit, and friends and family loans. In the last year we've closed some larger debt rounds to help with production cash flow. As a seasonal manufacturer, it's rags to riches after every season with profit+ going into growth and adding new product lines. We've tripled our product offering for Spring 12, so production will be a big issue.

I'm meeting with investment banking friends later this month to talk about an equity round, and other ideas, that will take care of growth.

What have you done? What do you wish you had rather done? Pitfalls? Success stories?

[wdfifteen]

I got started by continuing to work full time to keep my health insurance and a regular income. I worked 16-18 hour days for a couple of years and put every cent of business income back into the business. I had 30 day terms from all my vendors (except the post office). I always paid on time so they let me extend to 90 days in the off season. All my vacation time went to the business. About one weekend a month I would take a vacation day on Friday, pack up my car on Wednesday night and leave from the lab to go to an event after work Thursday, drive up to 10 hours, set up, sell and collect material all weekend, drive back Sunday night and arrive at the lab Monday at 7:30. Other weekends weren't so hectic, didn't have to drive so far, got to sleep at home Sunday instead of in the car.

I had offers from investors, but I didn't want to give up any control. Looking back, I think I might have taken some of them up on their offers.

[Christien]

Have you tried connecting with angel investors? I looked into it a few years ago, and it really seemed to be one of the ways I could improve my business. In the end, the recession took care of any needs I had for further capital, as business went way down. It took a few years to stabilize, and now I'm actually happy operating at a smaller level. But still, might be something worth looking into. Yes, you'll probably have to give up some control, but it would come with invaluable advice from their own experience.

[Seahawk]

This is a very interesting question, one every business struggles with.

As you no doubt now, there is no free lunch, especially with investors. The important thing to any business wedding is to understand the pre-nup carefully to prepare for the divorce.

What to the investors your are meeting want in return: A % of the company (ownership), a % of the gross, net, after taxe profit, etc.?

What are the investors accounting requirements? Make sure you know what additional work they may levy on you in addition to your current financial accounting.

There is a bunch more, but you get the idea.

For my company, we self financed and worked other projects until our first contract hit. That is the services and science side: We do program office support and go after Small Business Innovative Research (SBIR) projects that are broadcast every six months by all the services and national labs.

For our production stuff, we teamed with another company...we simply needed a White Night to invest in the necessary tooling, etc.

The negotiations revolved around two basic areas, one of which I think is important to you. The % of the profits on our idea, what we are going to product was split 50/50. No ownership changed hands. What we kept, which I think is key to you, was the Intellectual Property and the Patent...we own it.

That is important because you are in the idea business: Your shirts are your intellectual property: Whatever agreements you need to make to survive, don't give up your creative IP on design.

Good luck. We just did a deal with a firm in Boston that took four months to settle on the right terms and conditions. Be careful.

[kach22i]

Originally Posted by Christien

Have you tried connecting with angel investors?.

I never heard of them.

Found this link (looking in Michigan):
Angel Investing Groups in Other States

[red-beard]

Originally Posted by Christien

Have you tried connecting with angel investors? I looked into it a few years ago, and it really seemed to be one of the ways I could improve my business. In the end, the recession took care of any needs I had for further capital, as business went way down. It took a few years to stabilize, and now I'm actually happy operating at a smaller level. But still, might be something worth looking into. Yes, you'll probably have to give up some control, but it would come with invaluable advice from their own experience.

Dodd-Frank has dried up a lot of Venture-Capital.

[Shaun @ Tru6]

good story. how long until you felt it really paid off?

We had good terms with our overseas vendors but they have all dried up with so many companies going out of business. it's 30% down on placing an order (90 days from ship), 50% on ship (35 days port to door) and 20% on delivery. We have many customers on credit card on ship, but it doesn't help 30 and 90 days out.

Originally Posted by wdfifteen

I got started by continuing to work full time to keep my health insurance and a regular income. I worked 16-18 hour days for a couple of years and put every cent of business income back into the business. I had 30 day terms from all my vendors (except the post office). I always paid on time so they let me extend to 90 days in the off season. All my vacation time went to the business. About one weekend a month I would take a vacation day on Friday, pack up my car on Wednesday night and leave from the lab to go to an event after work Thursday, drive up to 10 hours, set up, sell and collect material all weekend, drive back Sunday night and arrive at the lab Monday at 7:30. Other weekends weren't so hectic, didn't have to drive so far, got to sleep at home Sunday instead of in the car.

I had offers from investors, but I didn't want to give up any control. Looking back, I think I might have taken some of them up on their offers.

We have two investors now that could be considered angel investors. A great friend, and fellow Pelican, put us together. My hope is that they will be a part of the next round, if only to reward them for their generosity so far. they have been key players in the company's growth. It's how to structure this next round that I'm really seeking advice and information on.

I can tell you that giving up control will be difficult, but I know it's part of the game.

Originally Posted by Christien

Have you tried connecting with angel investors? I looked into it a few years ago, and it really seemed to be one of the ways I could improve my business. In the end, the recession took care of any needs I had for further capital, as business went way down. It took a few years to stabilize, and now I'm actually happy operating at a smaller level. But still, might be something worth looking into. Yes, you'll probably have to give up some control, but it would come with invaluable advice from their own experience.

[Shaun @ Tru6]

I highlighted in bold the key points. I want to drive the investment. I don't mind giving up small portions of the company. I do want investors to feel like they are really going to win big a few years down the road. I do want to keep total control. Mind you, we are going for lowish 6 figures, so my hope this will be more of an interesting investment and not so much hands on, though I would like some more general business council now and again. I think they would appreciate lending that as well.

All very good advice below, thank you. And my sense is I will keep ownership of all design. It is part of me, the entire aesthetic from the shirts to leather jackets and everything in between that makes a collection distinctively Little Traveler (soon to be changed to Traveler).

I may PM you in a month or two if OK.

Originally Posted by Seahawk

This is a very interesting question, one every business struggles with.

As you no doubt now, there is no free lunch, especially with investors. The important thing to any business wedding is to understand the pre-nup carefully to prepare for the divorce.

What to the investors your are meeting want in return: A % of the company (ownership), a % of the gross, net, after taxe profit, etc.?

What are the investors accounting requirements? Make sure you know what additional work they may levy on you in addition to your current financial accounting.

There is a bunch more, but you get the idea.

For my company, we self financed and worked other projects until our first contract hit. That is the services and science side: We do program office support and go after Small Business Innovative Research (SBIR) projects that are broadcast every six months by all the services and national labs.

For our production stuff, we teamed with another company...we simply needed a White Night to invest in the necessary tooling, etc.

The negotiations revolved around two basic areas, one of which I think is important to you. The % of the profits on our idea, what we are going to product was split 50/50. No ownership changed hands. What we kept, which I think is key to you, was the Intellectual Property and the Patent...we own it.

That is important because you are in the idea business: Your shirts are your intellectual property: Whatever agreements you need to make to survive, don't give up your creative IP on design.

Good luck. We just did a deal with a firm in Boston that took four months to settle on the right terms and conditions. Be careful.

[Hugh R]

Not relevant to your situation Shaun. But I got laid off of a job and didn't want to go back to work for another consulting firm. At the income level I wanted to get paid, I'd have to bring in about a mil in sales or more a year. I figured if I had to hustle for work, it might as well be for me. I printed up business cards, got a dedicated business cell phone as my "office" and started calling old clients and contacts. Within a month I had my first assignment, and within a year was billing $150-$200,000/year in revenue. Since I worked out of my house, it was all essentially profit, minus mileage, phone, etc. I did that for three years and basically neglected my wife and kids, which was unfortunate since they were young teenagers. But I kept my house, put money away and did very, very well. I quit and joined Disney (a former client) because I got tired of doing nothing but finding my next client/assignment.

At the time I started, I had several years of living expenses comfortably in the bank.

[mnewport]

I had no money whatsoever when I started my company in 2006 (not a figure of speech, I literally had no money). I set up an account with a web host, and did some work in trade for a decent looking website and logo. I took my first customer's order and used his down payment to purchase the materials to build the product I sold him. What I lacked in business capital I made up for in sweat and hard work. Within a year I had grossed low six figures. I busted my @ss over the next few years, and managed to achieve steady growth. My second year of operation (2007) saw 400% revenue growth over the first year. In 2008, when everyone was running for cover, I was killing myself trying to keep up with the growth we were seeing. By the fourth year, I was doing $1M+. Last year we did $1.5M, this year we saw a drop due to an industry shift, and we're projecting about $1.2M in gross numbers. I hold patents in the technology I developed, and we're easily 15 years ahead of our (far larger) competitors. In addition, our profit margin is about 80% of revenue which allows me to pay very well and attract good people. Despite the drop in revenue from last year, we've gained several large clients in the last two months, so we're expecting continued growth next year. Over the last year I managed to accumulate debt due to project development, but it's only about 4% of our revenue.

I guess all of this is to say there's no set way to fund a business. Personally I wouldn't feel comfortable with an outside investor because I would have a hard time explaining why my ideas work. Also, I consider a lot of the formalities that go into these sorts of business relationships to be unnecessary time wasters and BS.

[LakeCleElum]

Sometimes, with a good record, suppliers will front the product, and you pay after you make your sales.....Happens all the time in the "farming" industry....

[Seahawk]

Originally Posted by Shaun 84 Targa

Little Traveler (soon to be changed to Traveler).

I may PM you in a month or two if OK.

The name change is excellent...captures more, includes the Dad and Mom.

And I apologize for all the typos...my synapses leap before my fingers.

PM when you feel it best; do well and if I can add to your enterprise in any small way, I will aid and abet.

[Shaun @ Tru6]

Thank you Paul.

[Christien]

Originally Posted by Shaun 84 Targa

I can tell you that giving up control will be difficult, but I know it's part of the game.

I think a lot of it depends on whether you're in it to make money, or in it because you love working for yourself, and it makes you a living. If the former, then who cares about giving up control if it makes more money. If the latter, then it's a much more difficult thing to do. My business is fully in the latter camp, so I'd really never give up control, unless it came along with retirement.

[Shaun @ Tru6]

Originally Posted by Christien

I think a lot of it depends on whether you're in it to make money, or in it because you love working for yourself, and it makes you a living. If the former, then who cares about giving up control if it makes more money. If the latter, then it's a much more difficult thing to do. My business is fully in the latter camp, so I'd really never give up control, unless it came along with retirement.

Thanks Ian. If I were in it to make money, I would have stayed in marketing and suffered the consequences of living under corporate. That said, the company is truly scalable and that has always been part of the equation.

My sense is there are people in the world that are better at running the day to day of a company like mine than me, but no one better with vision, direction, and creative input. The biggest reason I don't want to give up control is that on many occasions, if I had taken the advice of interested outsiders, we'd be out of business. So balancing financial (and therefore business direction) input with ownership and control is going to be key to our overall success.

This is the crux of the thread really.

I agree on the retirement concept, but we are 3-5 years out on that.