Women receive less than 2 % of equity investments and it is time to change these numbers. Research shows that despite all gains in many fields, women still lag behind in growing businesses. Some claim investors are not recognizing that women develop firms differently, that they take fewer risks, that banks would not lend as much, but the reality is quite DIFFERENT. Women are less confident and less prepared to raise funds. This program is developed to overcome those two weaknesses. In particular you will:
1. Become aware of your relationship with money.
2. Evaluate and overcome if necessary any of the ten unwealthy habits.
3. Understand the financial world of business (or non-profits that want to be managed with professional business practices).
4. Define your goals and those of your project or organization.
5. Understand key financial concepts and funding mechanisms
6. Select the sources of funding that better fit your goals.
7. Establish a funding strategy.
This course is structured in building blocks, so you can do as deep or superficial as you feel like it. Browse through the minivideos, read the supporting texts, revise your understanding, participate in our discussions, watch the interviews, join us on social media. You can elect to take this course on your own or with guidance. Or you can create a group of 20 and we will monitor and discuss your advancement. If you are a consultant, contact us to create a program for your group.
Whether you are ready to raise funds, want to help others, or learn the basics, we are here to help. We also invest in companies, but we do not invest in women or in men, or in race or age, we invest in talent.
When I explain funding mechanism, I like to help people think about what I called mindsets. If you are able to put yourself in the mindset of debt, equity or unfunding you will be much better prepared to target the ideal partners. Now, let's talk about the type of funding mechanism that hardly anybody knows about: unfunding!
Think about a time when you didn't need money. You could go a long way with a very limited amount of money because you did not have to pay for rent, the use of your furniture, your food, utilities, sometimes clothing and most or all of your necessities. You still used these items; you just didn't have to pay for them. Furthermore, think about those opportunities where family, friends, acquaintances, and sometimes even strangers provided you with necessities.
Right before independence, helps flows to make it work
You did not feel the need to have money because you did not have to pay to use valuable things, you were not fully independent and you did not owe anything in return for that which you were using or consuming. It was given to you, but it was not a hand out. Rather, somehow, you felt you deserved to use these assets but you also knew you could not dispose of these benefits for other ones. For example, you could not have someone else eat your dinner, sleep on your bed, or wear your pajamas. You had permission to consume some things without paying for them, but you did not have full ownership or full obligations.
Welcome to the Unfunding Mindset. Chances are that you don't even realize how easy you have it until you have to pay for your own stuff. Some businesses follow a similar path. There is plenty of support available: working overtime, a helping hand moving boxes, the advice of a friend, a supplier's employee that connects with another supplier, and so forth. This help can go unnoticed or unrecognized. However, when entrepreneurs or founders reach out for help, they can find amazing responses: For instance, Uncle Bill gives you a fax machine and his secretary takes 10 minutes to save you tens of hours on letter formatting. Other examples: Mary finds a store that might carry your products and calls them up for you; Paul lends you his truck; your lawyer refers her accountant to you, who then refers you to his web designer, who connects you to her printing company, which offers to promote you as the client of the month. You just benefitted by hundreds of unpaid hours. Or you post your idea on a crowd-funding site and you get backers supporting your idea, providing you upfront capital so you can develop it and give something fun in return.
Others are prone to help you because they feel useful and want to support your future independence. They are not obliged to help you rather, they do it freely even as you don't feel tempted to demand their help. Sometimes their help comes unannounced, sometimes you request it, sometimes your request is rejected, and sometimes help is offered. It is not the focus of your attention, it is complementary. Yet, in a larger scheme of things, the contributions you receive are very important during a company's initial stages:
The unfunding mindset is a very interesting concept as it opens many opportunities to explore innovative ways of funding. If we think back to the origins of funding and money, we realize that unfunding has always existed in the sense that people provided resources that were transformed into economic development — what we normally accept as prosperity.
Unfunding include: Reverse Financing, Factoring, Lease Financing, Disappearing, Gifting, Partnering, Bartering, Granting, Crowdfunding, and Business Plans Competitions.
When I explain funding mechanism, I like to help people think about what I called mindsets. If you are able to put yourself in the mindset of debt, equity or unfunding you will be much better prepared to target the ideal partners.
Let's talk about debt first because that is what most people think about when they think about funding. They go to the bank right? Ok, this is how you can understand the debt mindset so you are prepared.
Think about what bills you need to pay this month. Do you have a mortgage? Do you need to pay for your car, your credit card, the telephone bill, buy food? What about electricity? And don't forget the taxes!
Do you wait until the payment due date to find out how you will get the cash to pay? Or do you use a system that helps you put aside part of your income in time to pay for bills before they are due? The money you need to fulfill your obligations must be readily available when the time comes to pay.
You have bills because you have entered into a dual promise: you gain access to something in exchange for a payment. The whole system works because others accept your promise to pay. They, in turn, can then fulfill their promises to make payments: to their employees, their suppliers, and even the government.
This system of promises for payments is based on the clear expectation that the lender — or supplier of money — doesn't expect any benefits other than a payment for access to capital, and the debtor – or demander of money — doesn't expect to share any benefits other than a payment for accepting capital (a benefit evaluated in terms of interest).
Being a debtor means that: someone believed in you enough to lend you some money; you used that money to get some benefits; and you pay interest for having access to that money. The only reason such a system works is because the risk of not fulfilling promises to each other is assumed to be very low. Timely payment is expected and neither party should take unfair advantage of each other.
So, if you are seeking a loan, you need to show that: you have the capacity to pay under the conditions you agreed upon. In financial terms it means: you are generating the income to pay for the installments, and eventually pay off the whole amount, AND that you have shown previously that you have the intention to pay that too.
Unfunding is a very creative way of getting access to resources without paying for them. Basically, it deals with changing the way we think about cash. We tend to think that we need cash to get things done. Let's break that paradigm.
As you might recall, funding is the mechanism of providing cash to pay for resources. That cash is provided by one of the two conventional ways of funding: debt and equity.
The needs for funding, or cash, result from evaluating what cash is coming in and what cash is going out. Which is called the cash flow.
Traditionally, we estimate funding needs by looking at the numbers. Strategically, however, we can have a much better view of those needs if we take the time to specify what are we going to use that cash for, what are we paying.
For example, if we take the financial view, we could estimate that we need 100,000 dollars to purchase a 3D printer, a car, and a desk, and another 100,000 dollars to hire an artist, and a sales executive. If we take the strategic view, we realize that we need molds or parts, transportation, drawings and sales. We could then share a 3D printer, ask for Aunt Lucy's desk, and partner with a taxi company, or lease the vehicle; we can also share an sales executive and seek a rep that carries a line of products complementary to ours.
In a personal example, you can take different approaches. You could search for the best possible house you can buy. Or find a dream house first and then look for ways to purchase it. Or, find ways to live in a house by taking care of it, swapping houses, or leasing it. Unfunding is similar to this last approach, focusing on the use of the house, not the ownership.
Unfunding requires the interest of stakeholders who benefit from your activities and have the capacity to share expenses and rewards with you. I love this topic because it allows us to discuss different schemes and opens a whole world of possibilities that might not be immediately apparent. As a result, the need of cash diminishes greatly or disappears completely.
Think for a moment on what would happen if we thought about we wanted to achieve, and instead of limiting ourselves to what we can get funded for? If we focused on discovering natural collaborators to drastically diminish or even completely eliminate our capital needs?
Reverse financing refers to getting cash in before spending funds producing or delivering what you offer. Some large companies, such as Avon and Tupperware use it. Also some phone companies pre-charge you for their services. Gift cards work in a similar way.
Reverse payment is used by companies large and small to reduce their capital needs. If you are starting something new, you might not think this is for you.
Let me tell you how I did that.
When I started my first informal venture, a cookie and cake company, I was a poor student, and did not have a car. I wanted to make sure that all of the products I made and delivered to the University were sold.
By trial and error, I ended up picking the most popular product, a never-fail 7-up cake, and sold it only on Fridays. I ran my routes through the hallways every other week to not bore my clients. One day, a secretary ordered a cake for the following week and prepaid for it. I thought it was pretty cool to have money in hand to buy the materials.
Pre-payments provide three main benefits:
The best way to use pre-payments is to discover or create an opportunity with a unique value, and provide some form of benefit for early payment. This system is also used in seminars and conferences for early-bird discounts.
Crowdfunding is the process of engaging a large crowd of backers to provide cash to fund organizations or causes. There are two types of crowdfunding. One is via donations or presales, and the other is via investments.
Donation crowdfunding websites such as Kickstarter or Indiegogo facilitate the matching of donors with creative projects. The payoff for the donor is usually some sort of merchandise associated with the project, like an autographed copy of a book. This model works well for small projects.
Crowdfunding is about establishing meaningful connections on a short period of time. Individuals provide crowdfunding because they care, receive participate, and are inspired by the organization's vision.
Let me explain this with more details:
Crowdfunding has expanded into crowdinvesting.
In the US, the Jumpstart Our Business Startups (JOBS) Act, allows small, unsophisticated investors to buy shares or debt privately for startup companies. Private companies can raise up to $1M a year through crowdfunding if they provide audited financial reports and without undergoing the expense of an Initial Public Offering (IPO). An individual with earnings or net worth under $100,000 can invest five percent, up to a $2,000 cap. The percentage rises to ten percent and the cap increases to $100,000 for wealthier investors.
An alternative to buying and owning assets is leasing. Leasing is essentially the rental of assets or the payment of appreciation. Once again, let's look at leases from the financial and the strategic point of view.
Financially, leasing eliminates the needs for large amounts of cash, changes the depreciation benefit, and transforms an investment into an expense.. It can be a little bit more complicated as we will explore in the course materials because the depreciation, tax implications, and internal lease interest.
Strategically, leasing allows for the use of assets that can become obsolete or unneeded in the near future.
The lessee, who receives the asset, commits to making a recurrent payment, similar to a loan, usually a little lower. The lessor retains ownership of the asset.
The lessor can be the supplier of the asset, a banker or other financing institutions.
For example, a company might require a loan to expand its manufacturing capabilities, and could talk to a banker to secure a loan to then pay for the purchase of the equipment, or the supplier of the equipment could propose a lease option that will make it easier for the company in financial terms. A bank then might be giving a loan to the supplier. A combination of lease and loans are also possible.
Disappearing involves the elimination of funding requirements by creatively sharing rewards with other stakeholders that can benefit from a unique company. It does not include the use of government funds that give support to innovative, exporting, and young local companies, including those that are minority-owned or that fulfill specials requirements. That is what I call granting and will be discussed at later. An example of disappearing is asking for free advice from a consultant friend; asking for volunteers to take on the role of employees; using space or equipment for free; traveling with frequent flyer miles for flights and lodging; and brand flattering. Brand flattering is the process where the image of a company or institutions benefits from an association with another one, typically for a 'good cause.'
I use disappearing extensively in my businesses, and for many of my clients. I developed a process that is easy to understand and apply by following a five-step plan:
Disappearing avoids conventional norms of practice:
Thus, it is critical to be flexible and focus on making sure there are benefits – mostly non-financials – to those who participate.
Many young and small organizations have the advantage of size. Because they are small, they can do with lots of 'unwanted' products. Gifts are products or services given away without an expectation for a return. They come from many sources: from charities, from other businesses, or from individuals like employees or customers.
Typical examples of gifting are:
Gifting also provides for a way to test new products or services. Companies select potential clients that have expertise and are willing to provide valuable feedback so that they can improve their products or services before launching them. In some cases, especially for high-tech companies, tester are very beneficial, and are more flexible that current customers. I invested in a video game company that review new platforms and programs. This saves them time of programming for technologies that could become obsolete.
Some companies use gifting as a way of conducting business: recycling paper, doing public relations, and receiving what others give freely because it is not intended for use. Public relationship companies typically use their strong ties to get press releases into media as information and not advertisement, saving their customers large amounts of money.
Partnering involves synergy derived by combining two different units that can achieve something that would not be possible or convenient without a joint effort. Synergy comes from the Greek word syn-ergos, which means "working together". Typically, partnering involves doing something for the benefit of two independent units that continue to be independent.
Partners can reach a specific goal by working together without merging or forming a long term relationship. For example, many car rental companies have realized the advantage of establishing an independent single location for all of them at major airports. Efficiencies in costs and operations, ranging from construction to maintenance to safety, benefit everyone and dramatically reduce the needs of funding for rental companies both for investing and for working capital.
Partnering is very flexible but not as unorganized as the previous unfunding mechanisms. One of my favorite support programs for small and medium size businesses in Chile –Profo-- was created with the idea that working together will give businesses competitive advantages, which it did! A group of complementary firms – a minimum of five and a maximum of ten – would work together on a specific program and hire a manager for that program. The government paid half of the program's cost for the first year. As a result, small and medium companies could, for example, organize a production facility providing specific supplies for each one of them that otherwise would not be cost effective to procure. They could also organize an export organization, increasing the number of models to be offered and their production capacity. Working together helped companies find specialized expertise as they helped each other, and forced them to establish processes and evaluate efficiencies.
Bartering involves exchanging products or services without exchanging capital. Barter was actually the precursor of the capitalist economic model before the introduction of money. It includes an exchange of products, services, or information that fulfills promises. The commitment using bartering is simpler than with partnering.
Tax issues have also encouraged bartering among enterprises. Enterprises facing high tax burdens try to avoid their payments by using barter schemes. As a consequence, in 1982 the Internal Revenue Services in the US, passed a law for barter tax. This law equated barter system with banks and credit card systems.
If used properly, barter can provide a boost for any business. The main problem with utilizing bartering is that it depends on an existing benefit to others that might not be related to funds -- therefore, profit margins are not appropriately measured
In the following classes we will cover the basis of equity funding. Equity funding involves the exchange of funds for a piece or a promise to own a piece of the equity of the firm. That means that equity investors own a part of the organization in general terms. As owners they share the success or failure of the organization.
When we speak about equity funding, we tend to think about Venture Capitalists. Venture Capital funds are only one of the many possibilities of equity funding. To organize the wide spectrum of possibilities I have created a categorization based on: the involvement of the provider of the funds, his or her involvement in the daily operations of the organization, and the expected rewards. As usual, I would add some street-smarts tips that will help you increase your probability of getting funds from the most appropriate investor.
This session covers the following types of equity investors:
Founders, Family, and Friends – also called the 3 fs.
Venture capital (or VC) funds
The ideal type of investor varies according to the strategic intent of the founders. For example, a company that grows steadily to reach a stable point, like a local restaurant, will be more suitable for an equity partner or family and friends. Should the same organization seek to establish a new category and grow exponentially, then it might be more suitable for a VC fund if the investment is large or an angle if the investment is smaller and is used to establish a small set of prototyping units.
In the following segments I would explain what are the basis of each type of equity investor, what do they do, where to find them, and the major pitfalls to be aware of. Please go to the unfunding section for capital-less options, and to the debt section for loan options. Ready to go? Let's get funded.
Founders are the first investors in any organization. Not only in terms of capital but also in terms of time and effort, especially taking out ideas that do not work. Founders provide the initial funds and much of the time and analysis to create the business plan and initial set up. They also receive the highest rewards for such efforts, not only because of the funds they have committed but because they make things happen. And, especially in new organization, making things happen is difficult. Also, founders need to take a risk. An idea is not enough to warrant a part of the ownership. Action, and more importantly, recurrent action is required. Dreams are cheap, goals are expensive. The value is in the execution, and such value is captured by the concept of sweat equity.
Sweat equity is a way to capture part of the energy and 'make it happen' capacity of founders. Because it is a subjective value there is a lot of debate about that, and I have not found a mathematical equation to calculate the value of sweat equity.
A way to overcome this problem is by allocating shares according to milestones, in a process called vesting. We covered that concept in the segment of basic concepts.
When founders act as investors they face the following challenges: poor planning, lack of focus, financial slack, failure to recognize opportunities, failure to cut losses, and self-employee mentality. To overcome these pitfalls, define a business plan, establish a road map, and organize a group of advisors and use them.
If you have some funds, use them as part of the initial capital contribution. After all, if you don't believe in your idea, why would someone else believe in it?
If you are raising funds you need to have a funding strategy.
Things don't just happen…we make them happen.
To plan properly however there are several things you need to know.
You can go step by step organizing your thoughts and learning from your actions so you can improve your probability of success.
I want to give you the process that I developed through years of funding… seeking and providing funding, advising others, teaching and researching.
There are ten steps that can help you craft a funding strategy:
Make sure you check our course on Crafting a Funding Strategy!
I am an international expert in creating wealth from innovations and help people live a live with passion, purpose and wealth. This is the leadership of the future, and expands beyond business and entrepreneurial mindsets.
My career started as a young scientist and professor on Agronomy before becoming involved in product development for a Bayer-Shell joint venture and eventually turning into an entrepreneur and angel investor after attending Babson College's MBA program. (I received the Armando Travieso fellowship)
As an entrepreneur, I have started nine companies -successfully exiting from five of them- and two non-for-profit. I have also failer miserably in two ocassions. One of my biggest accomplishments was the pivotal role I played in the Development for the Entrepreneurial Curriculum and the Venture Capital Industry in Chile, where I lived between 1996 and 2002.
I have also consulted, mentored, or coached hundreds of entrepreneurs worldwide. An avid traveler, I have lived in the US (Chautuaqua, Boston, Houston, and Silicon Valley); Australia, Denmark, Chile, Switzerland, and Venezuela; and visited over 100 countries.
I have also served as a panel member of several international business plan competitions, including WRI, Endeavor, Babson College, and Western Australia's Inventor of the Year. And I enjoy being an active academic researcher and angel investor. I am one of the few female members of the prestigious Sand Hill Angels in Silicon Valley.
Philanthropically, I support organizations that foster education, entrepreneurship and domestic harmony.
She have an Engineering and Master of Science degree from Universidad Central de Venezuela, a Master of Business Administration from Babson College, and a Doctor of Philosophy from the University of Western Australia... and I speak English, Spanish, some German, Italian, French, Portuguese, and Arabic... and few words in Korean that my South Korean daughter-in-law has taught me.
A bit more about me can be found on my personal web.