The reading level for this article is Novice
Editor: Rich Battle-Baxter, Rutgers University
Publisher: Ryan P. Allis, University of North Carolina at Chapel Hill
“Whatever the mind of man can conceive and believe it can achieve.” – Napoleon Hill, best-selling author and motivational speaker
:: CONTENTS
1. Message from the Editor
2. Raising Funding for Your Early-Stage Business
3. A Six Point Plan for Success – Gain Maximum Efficiency in Your Life
4. Book Review: How to Win Friends & Influence People by Dale Carnegie
5. The Entrepreneurs’ Creed
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Section One
Message from the Editor
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Welcome to the third issue of ‘The Young Entrepreneurship Herald.’ We thank everyone for his or her positive feedback on our second issue last month.
In this issue we include two articles by young entrepreneur Ryan Allis. In our first article, ‘Raising Funding for Your Early-Stage Business,’ the different types of financing available to an early-stage business are considered, with explanation of sources of financing, a comparison between debt and equity financing, and tips to improve your chances of finding funding.
The second article, ‘A Six Point Plan for Success – Gain Maximum Efficiency in Your Life" highlights a six-step method for setting and achieving goals, achieving maximum efficiency in life, and developing a plan for success, as you define it.
In section four, we review the classic book ‘How to Win Friends & Influence People’ by Dale Carnegie. Finally, we publish The Entrepreneurs’ Creed, a motivational prayer for the entrepreneur.
This issue, along with all past issues, can be found online in the Young Entrepreneurship Resource Center at http://www.zeromillion.com/young/.
I thank you for reading this issue and being a subscriber of The Young Entrepreneurship Herald. Please do forward this on to your friends and colleagues.
Cordially yours,
Richard Battle-Baxter
Rutgers University
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Section Two
Raising Funding for Your Early-Stage Business
by Ryan P. M. Allis
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Article online at http://www.zeromillion.com/young/raising-funding.html
While staying with my brother at his apartment in Queens last week, I had the opportunity to talk with one of his roommates by the name of Mitch. After finishing a dinner of an authentic New York City mushroom and cheese pizza, Mitch and I started talking about the business he wanted to start. He told me about his idea, the market knowledge he had gained so far, and how he hoped to bring his product to market. He also mentioned that he would need funding for the venture, and asked for some advice on how to obtain it. "I hope to obtain venture capital, but am not positive how it works," Mitch stated. "Do I sell them 49% of the company for their investment? What will be the valuation for the company if there aren’t any sales yet? Should I go to a bank first?"
I explained to Mitch that while I have not personally had a need to raise money for a business venture as of yet, I had taken an MBA class on Venture Capital Deal Structure, participated in the Venture Capital Investment Competition at Kenan-Flagler Business School, read two texts on Entrepreneurship, and talked to quite a few persons who had raised capital.
I provided Mitch with an overview of the different types of capital available to an early-stage venture and how he might go about obtaining each. I also realized at the time that many young entrepreneurs would need similar information, and as such committed to write an article on the subject at my earliest opportunity. The following is essentially what Mitch and I discussed that night.
Debt vs. Equity
First, nearly all types of funding one can raise fall under one of two categories — debt or equity. The basic difference is that debt has to be paid back (it is a loan) whereas equity funding does not. In exchange for equity funding, the funds provider (investor) receives a percentage ownership (shares) in your company that grows proportionately to the overall value of your company. At a liquidity-producing event such as a sale of the company or an Initial Public Offering (IPO) to the stock markets, the equity holder could cash out their stock, ideally receiving a large return for taking the risk early on.
In his article, "Financing Instruments," attorney Michael T. Redmond explains the difference: "Although there are certain exceptions, debt instruments generally represent fixed obligations to repay a specific amount at a specified date in the future, together with interest. In contrast, equity instruments generally represent ownership interests entitled to dividend payments, when declared, but with no specific right to a return on capital."
Debt Financing
Standard types of debt include personal loans from family members and friends, bank loans, issued notes, and corporate bonds. These financing loans are provided at an agreed upon interest rate and time period. Some debts, called convertible debts, can be converted to common stock later on, but most are paid back with cash on a set schedule or set date. Whether the receiver of the loan pays only the interest during the term of the loan and the entire principle (the initial amount of the loan) back at the end, or pays part of both the interest and the principle at each payment period, is determined in the terms of the loan. Debt instruments can be secured by assets of the corporation or unsecured (backed by a pledge of credit).
The advantages of providing debt capital to a business include a reduction in risk, as upon bankruptcy debts must be paid back before any assets can be distributed to stockholders, and a near certainty of receiving the initial principle with interest back within a set period of time. Disadvantages for the issuing institution or person include not being able to participate in the value growth of the company.
Equity Financing
Equity financing, on the other hand, provides stock to the investor in exchange for funds. This is usually the form of investment that venture capital funds, angel investors, or other private equity funds make. In exchange for the investment, the investor can benefit from the growth of the company and receive either common or preferred stock.
Common Stock
Common stock is the most basic form of equity instrument. It represents an ownership in the corporation and includes an interest in earnings. Holders are also entitled to receive dividends (periodic disbursements to shareholders based on earnings and the decisions of the Board).
Holders of common stock have the best opportunity to share in the company’s growth, but also must take into account the increased risk of coming after holders of debt and preferred stock in the case of company failure and bankruptcy.
In the view of the business owner, there is one important advantage to issuing common stock in exchange for financing. There is no obligation to repay the amount invested. The investor’s prime reward for taking the risk is participating in the value growth of the company and cashing out upon a liquidity event. Another advantage for the investor is the ability to vote for directors.
Preferred Stock
Preferred stock is a second form of equity instrument. While it is equity, it can have certain features that resemble debt that can make it attractive.
Most important to the investor, it has rights over common stock, reducing the risk of loss of investment. When issued, investors can also negotiate with the company whether it will be voting or non-voting stock and how dividends will be distributed. In short, it offers greater flexibility and reduced risk, and hence is preferred to common stock.
Preferred stock is usually the type of stock issued to venture capital funds upon investment in a company.
Increasing Your Chances of Receiving Debt Funding
While obtaining funding can be a difficult process, there are a few things you can do to increase your chances. Here are some tips.
If you are only looking for a few hundred or a few thousand dollars, you should first look to friends and family and then to the banks. If you have assets to back it up (such as cash in your bank account, a house, or a car) you should be able to obtain a loan with relative ease. If you are under 18, you will generally have to have a parent or guardian co-sign the loan. And if you do not have adequate assets to back up the loan, the bank may ask for you to find someone (such as a parent or friend who does have adequate assets) to co-sign the loan. Remember, the less risk the bank feels it has, the greater chance you have of being approved.
If you have an existing account, a good credit history, and relationship at a local bank the process may not be any more complicated than meeting with a loan officer, discussing your plans, filling out a short form, and waiting a week for approval. However, if you have not established these relationships and history, now is a good time to start.
If your are serious about raising funding, you’ll need at least some form of business plan. The more funding you are trying to raise, the more professional and complete this plan will need to be. At its core, you’ll need to explain what you will be providing, what need/gap it fills in the marketplace, who you will be working with and who is on your team, your plan for making sales and marketing, and your financial projections including the time to break even. You may want to read some of the articles on developing a business plan on www.zeromillion.com for additional guidance or obtain a book on how to craft your plan.
In general, you will be more successful obtaining financing if you have formed an entity (LLC or corporation) for your business. While it may still be possible to obtain a loan for your sole proprietorship, you will be taken more seriously and have many more avenues open to you as a corporation or other type of limited-liability company.
If you are under 18, (and therefore unable to form a corporation), you should still be able to obtain a personal loan provided you have a well thought out plan, an established relationship, and assets to back it up, or parents, relatives, or friends who are willing to cosign and secure the loan with assets of their own. It can surely be difficult to obtain the financing you need. If you can learn the language, talk in terms on the bank’s interest, reduce risk where possible, and show you have a grasp of accounting and general business knowledge, you very well may be able to obtain the loan you need.
In the United States, another way to increase your chances of having your loan approved is to go to the Small Business Administration (SBA). If you can have your loan backed by the SBA, and hence by the Federal Government, you will have a much easier time.
When applying for a loan, especially those for larger amounts or to finance large investments or expansions, be prepared to meet with the loan officers and underwriters for your bank. In short, expect to be grilled from every angle by these persons and have your answers ready. It is the underwriter’s jobs to reduce risk, so expect hard questions.
In general if you are looking for US$1000-$50,000 in debt funding, a bank should be able to help you. With the right relationships and assurances you may be able to raise more and at better terms. If you are looking to raise more than US$25,000, however, you may wish to look into equity financing.
Increasing Your Chances of Receiving Equity Funding
Equity funding tends to be a totally different ballgame than debt financing, and generally requires a greater level of sophistication to make it work. If you are looking for between US$25,000 and US$1,000,000 of equity funding, you should start by looking at individual angel investors or networks of angel investors. Angel investors are high net worth individuals and accredited investors (as defined by the Securities and Exchange Commission) who are able to risk relatively large amounts of money in risky ventures with a potential for a high return.
To attract these types of investors, you will need to have the right advisors (lawyers and accountants with the proper experience and contacts) and truly have an idea or business which has a potential for a high-return (US$5M and up, depending on the amount of funding needed).
To increase your chances of being funded, be sure you have a solid business plan, experienced advisors, and a team with market knowledge that has proven they can execute.
If you are looking to raise US$500,000 and up and you have a business with a potential return greater than $50M over five years, you may want to look into venture capital firms. At the seed stage (very early stage funding), you may be able to raise between US$500,000 and $10M (or potentially more if it is the right plan with the right people) in a Series A offering of your company’s stock. To raise this amount of money and still maintain a good portion of ownership in your company, you’ll need to have a high valuation before your accept the funding (your pre-money value).
For example, if based on your intellectual property, first mover advantage, unique idea, and experienced management team your business was given a pre-money valuation of US$5 million and provided with US$5 million in Series A venture funding, you will have given away 50% of your company (providing there is no higher than a 1x participating preferred feature).
To increase your chances of being funded, have a very good business plan and be sure to have it introduced to the venture capital firm by the right person. Most VC firms receive thousands of business plans per year and can only give a cursory (five minute) look at most. If you can have a lawyer who works closely with the firm or successful CEO who worked with the firm in the past hand-deliver the plan you’ll have a much better chance of getting in the door.
In summary, it can be difficult to obtain funding for your business as a young entrepreneur. Hopefully through this article you have learned the basics and now have a better idea of what type of funding you need, where to go, and how to increase your chances of receiving what you need. I wish you well and thank you for reading.
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Section Three
A Six Point Plan for Success – Gain Maximum Efficiency in Your Life
by Ryan P. M. Allis
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Article online at http://www.zeromillion.com/personaldev/success-plan.html
Just over a year ago, on March 11, 2002 I first wrote down my goals and created a mission statement. It was a one page document that I framed and read every morning when I woke up and every night before I went to bed.
Since, I have received much benefit from this mission statement. It has provided clear guidance and direction for my life and has given me renewed strength and motivation when I have felt overwhelmed or burned-out. This document has been continually refined to reflect new learning, new opportunities, and new desires, but still is able to express the overall definite purposes I plan for my life and goals I hope to accomplish.
Over this past year, I have developed a six-step system for effective planning and goal setting, of which the mission and goals statement is part one. I would encourage anyone who has goals they wish to reach to use this or a similar system. While using such a system cannot give immediate results, I do believe that over time great dividends and efficiency in life will be gained.
It does take some self-discipline to follow, but in all takes only about an hour and a half per week.
At the basic level, you simply must write down your goals and then review your performance and progress periodically. Secondly you must get your subconscious working for you by reciting these goals and hopes to yourself daily.
Here is a complete description of this planning, goal-setting, and motivational system I use today.
I. Create A Mission & Goals Statement – The driving forces and purposes behind everything that you are and do
- Write down each of your goals in the categories of six months, two years, five years, and long term. Below your listing of goals, write your mission statement, which should capture the most important goals you have and the type of person you wish to develop into.
- Also include what you are willing to give up to achieve these goals.
- Define explicitly what success means to you.
- Once you have come up with your mission and goals statement, sign and date a copy and frame it. Hang a copy in a prominent place in your home.
- Read your mission and goals statement to your spouse, family, or close friends and ask for feedback.
- Every morning when you wake up and every night before you go to bed, read your mission and goals statement out loud to yourself. Let it sink into your subconscious and drive all that you do. Let it motivate you to use your time to its fullest and achieve, and execute to the best of your ability each and every day.
II. Create and Recite a Personal Prayer and Creed Twice Each Day
Each morning and evening, as the first or last thing you do before retiring, read your personal prayer and creed aloud. In it you should thank God (or your personal spiritual being) and all those who have helped you to where you are, ask for wisdom to proceed and reach your goals, pray for those who are sick, in need, or under duress, and ask for strength to live life to your fullest and to make maximum use of your time.
Napoleon Hill says in his book, Succeed and Grow Rich through Persuasion, "The brain of a human being may be compared to an electric battery in that it will become exhausted or run down, causing the owner to feel despondent, discouraged, and lacking in pep. Who is so fortunate as never to have had such a feeling? When the human brain is in this depleted condition, it must be recharged." (p. 172)
I find that saying this personal prayer recharges me. It calms my nerves before I go to bed and gets me going strong each day.
While this is optional, in addition to my personal prayer and creed I recite the Entrepreneurs’ Creed (published in section five of this newsletter) once per week and have a framed copy in my home.
III. Create a Qualities Statement and Give Yourself a Monthly Analysis
Write down the qualities and characteristics you would like to have and those you would not. List each and then define each explicitly in your own words. Review this document monthly and analyze your performance in exhibiting the desired traits and avoiding the undesirable traits.
IV. Write A Journal Entry Daily & Prepare for Upcoming Days – Take time for reflection, planning, and analysis of learning
1) Each day, take ten minutes before you go to bed and write a summary of your day. Include what you’ve learned, who you’ve met with, any reflections, what you’ve done, what you’ve worked on, and what you must accomplish the following day.
2) & lt;/span>See what axioms of knowledge or wisdom you can write down each day. Keep a master list of all quotes or axioms of wisdom you have written and review this list at least monthly. Put a stay next to each bit of axiom of wisdom you write down. On the last day of each month, go back through your journal entries and type up all of your axioms and file them under ‘Learning for Month, Year.’
3) Every night before you go to bed, review your schedule for the upcoming two days. Make any plans or preparations that you need to.
V. Organize Your Upcoming Week with a Weekly Planning Session Every Sunday Night
Every Sunday night, set aside thirty minutes to simply catch up with life, meditate for a few minutes, and plan your upcoming week. Have your calendar at hand and review your commitments. If at any point during the week ahead you have free time, you can schedule a meeting, set up a date, work ahead on a project, write thank you notes or cards, get something done you’ve been meaning to, or sit down with a book.
VI. Write Down Your Monthly Goals and Objectives & Review Your Progress
1) On the first of each month, write a down your ‘Monthly Goals and Objectives.’ Include the things you want to get done, the projects you want to move ahead on, the people you will need to meet, and any goals you’d like to achieve.
2) On the last day of each month, write down a ‘Monthly Review of Self-Progress.’ In the review, list the items/goals you have accomplished and those you have not, make note of any learning that has taken place, and write a candid and honest review of your progress towards your goals and your ability to be disciplined and follow-through.
3) On the last day of every month, review your mission statement and consider revising it to reflect new learning, new opportunities, or new goals.
Example Success Calendar for April
* Before beginning, write down your mission and goals statement and personal prayer and frame them in a visible location. Also write down your qualities statement. Then proceed, keeping all forward movement within the framework you have constructed in these three documents.
Tuesday, April 1 – Monthly Goals and Objectives (1 hour)
Sunday, April 6 – Weekly Planning Session (30 mins)
Sunday, April 13 – Weekly Planning Session (30 mins)
Sunday, April 20 – Weekly Planning Session (30 mins)
Sunday, April 27 – Weekly Planning Session (30 mins)
Wednesday, April 30 – Review of Monthly Goals and Objectives, Typing up of Month’s Learning, Give self-analysis on Qualities Statement (2 hours)
*Every evening in April – Daily Journal Entry (15 minutes)
*Read Personal Prayer and Creed and Mission Statement Aloud Twice Per Day (5 minutes)
Since following this plan I have been better organized, better prepared, more motivated and intent on reaching my goals, and have learned about life at a much faster pace. While it does take some self-discipline to do, I encourage you to try this plan, or a similar one you develop yourself, for two months and analyze the results. First explicitly define your goals and mission. Then, get your subconscious working for you by constantly reviewing these goals, executing the steps needed to reach them each day, and tracking your progress and refining your mission as you develop as a person.
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Section Four: Book Review
How to Win Friends & Influence People by Dale Carnegie
Review by Ryan Allis
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I purchased Dale Carnegie’s ‘How to Win Friends & Influence People’ two days ago from the bookstore and read it from cover to cover in two successive nights. I find it a very good book that contains some very important truths about human relations. While most of these truths are basic, too many of us (including myself) do not follow many of them. Reading this book really opened my mind to some of the mistakes I have made.
Two points from the book I found especially pertinent are, "To make friends, take a genuine interest in people," and "One should talk in terms of the other person’s interests." These points may seem to be common sense, but you may be surprised how often you do not heed this advice.
Finally, although this is an old book (originally published in 1936), its axioms hold true. Further, the old-time stories and anecdotes were captivating and illustrated each point well. I would very much recommend this book to any person, young or old, who wishes to learn a little bit more about human relations.
Mass Market Paperback: 276 pages ; Dimensions (in inches): 0.80 x 6.80 x 4.16
Publisher: Pocket Books; Reissue edition (May 1990)
ISBN: 0671723650
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Section Five
The Entrepreneurs’ Creed
Created by Ryan P. M. Allis
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As an entrepreneur, I recite this creed to myself once per week and have it framed in my home. Please do feel free to do the same.
I pray this day to the Entrepreneurial Gods. I set myself before you and this world as an entrepreneur. I analyze the markets and take educated risks through planned ventures and investments. I accept the basic law of the entrepreneur – that of supply and demand. If I am right, I will be rewarded with capital and stature. If I am not, I will bankrupt my accounts, yet gain in wisdom so as to improve chances on my next try. While keeping in mind externalities, I create what us as humans demand, and in turn make the world an improved place for all. Through my work I create dynamic economies in which the standard of living is always increasing through technological progress. Through my work I encourage competition, and provide lower prices on and a higher quality and a better selection of goods and services. Towards this end I shall always be persistent, continually learn, be a master of relations, and be forever motivated to excel. I am an entrepreneur. Grant me strength, vision, persistence, motivation, and energy.
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This concludes issue three of The Young Entrepreneurship Herald. We’ll see you in April.
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