You’ve got a great idea for a...
You’ve got a great idea for a high-tech product or service, but you don’t have the funds to bring it to market. Don’t despair. If you’re in the booming technology industry, there are steps to take to attract people who are willing to invest in start-up companies because of their high growth potential.
Before investors write checks to companies in risky fields such as high tech, they want to be sure that costs are held to a minimum. Entrepreneurs should keep their day jobs as long as possible, keep credit cards free of long-term debt and look for government financing through agencies such as the Small Business Administration, said Melinda Skaar, a principal and senior consultant at Neotech Consulting, a Los Angeles firm that specializes in helping young technology ventures find money.
But penny-pinching will only go so far. At some point growth requires capital, and that’s when companies look for “angels,” said Carolyn Johnson, a principal at Genesis Capital Partners, a merchant banking firm in New York. Angels are “high net worth individuals” who are willing to trade a lot of money for a lot of equity in a technology company with the potential for monumental growth.
There are about 2 million Americans with assets totaling $1 million or more (not including their homes), and any one of them could be an angel. They typically belong to professional organizations and alumni associations and sit on boards of directors. With some dedicated, calculated and well-researched networking, you can increase your chances of meeting a potential angel, Johnson said.
Once you do, be prepared with a short business plan that describes your product or service, its competitive advantages and recent financial statements--all in 20 pages or less. Angels usually make investment decisions within a month, so speedy follow-up is essential.
Angels expect to see their investment increase tenfold in five to seven years, Johnson said. Venture capital firms are looking for even greater returns, said Bob Choi, an associate analyst with Enterprise Partners in Los Angeles.
Last year, venture capital firms like his had a combined total of $7.5 billion to invest in new companies, Choi said. In 1995, Enterprise Partners reviewed 2,000 business plans and invested in only eight.
Venture capitalists look for strong management teams with proven track records. Companies must have the potential to dominate their market segment and have a product that lends itself to cultivating long-term customers. Eventually, a company would be put up for sale--to a larger company or to the public--so that initial investors can take profits.
Skaar stresses that funding for high-tech companies can come from a variety of places and that entrepreneurs should keep an eye on potential sources.
“Be clever,” she said. “Look for creative, low-cost solutions.”
* Karen Kaplan, a freelance writer who covers technology and careers, can be reached by e-mail a karen.kaplan@latimes.com
More to Read
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.