CLR Reprint - Dot.Com Millionaire

You have a great idea, you have a web site, and you have mortgaged your home and first born child. Now what do you do? How do you become the next Amazon.Com, AOL or Bill Gates? The road to riches is not always an easy one. Nor, in these changing times, is the road the same one outlined in Business 101. The following is a three part series designed as an outline to assist and guide you through Dot.Com mania and hype. It is intended to take your idea from a start-up to an IPO. In the months to follow we will cover the three basic steps to funding a high tech start up corporation. (1) Angel Financing, (2) Venture Capital Funding, and (3) The IPO or Initial Public Offering.

The journey of a thousand miles begins with a single step. That first step is creating a plan and structure for your company. Planning and structure are the most important stage in your development. Please do not attempt to start a company without first retaining a business lawyer and accountant. They will be essential in helping you to develop and follow a viable business plan. Without a plan, you plan to fail. This document will map out a path for you to follow. It will say approximately how much money you will need to get from point A to Z. Most small businesses fail due to lack of capital and poor planning. You need to know from day one how you will manufacture, market, and deliver products or services to your customers. How large a staff do you need; who is your consumer market; what is your tax liability; what is your supply and distribution stream. These are all questions you need to answer before approaching anyone with your idea.

Now you have a viable business plan that states you need a half million dollars in initial funding to develop a prototype and operational web site. Angels are a 90's term to define wealthy individuals who will write you a personal check, ranging anywhere from $5,000 to $500,000 dollars to help finance your company. They can be your family, friends, coworkers, or anyone else you can find to invest in your venture. Normally they range from the local dentist hoping to impress his golfing buddies by getting in on the ground floor of the next E-Bay, to the former CEO who wants to stay in the game by helping startups grow.

Every Net company needs to raise seed capital of a few hundred thousand to allow the founders to quit their day jobs, create the skeleton of the company, incorporate, build a prototype website, file for necessary patents, and so on. Taking less initially lets you build the value of your company and lets you give less of it to the big venture capital fund when you eventually raise that $5 million dollars.

To find Angels, tell everyone you know and everyone you meet, from your mom to strangers on the street, what you are doing. You shouldn't worry about giving your idea away as much as you should worry about not getting your funding fast enough. A good place for the totally uninitiated to start, is to talk to anyone who deals with a lot of startups, such as lawyers, PR firms, accountants, and marketing consultants. You can find list of professional Angel financing firms like www.angelnetwork.com on the net by running a standard search.

The best angels offer more than just money, however. You want your angel backers to provide money and sweat--making business development contacts, finding candidates for positions within the company, landing a good PR firm, or negotiating that six-figure licensing deal with Yahoo. You want an Angel who is well connected in your local tech community and is willing to pick up the phone on your behalf.

When pitching angels, remember your immediate goal: The purpose of your initial pitch, and your pitch document, is to get them to invest. Keep your business plans to yourself until they are explicitly requested. What you need first is a short marketing document, an Executive Summery. This document should be less than 5 pages and highlights the problem, your solution, how much money you stand to make, and why you're the team that is going to make it happen. Highlight the most intriguing aspects of your company (usually a strong team, or killer patent position) and avoid clouding your message with spurious details and hype.

The size of the Angel investment you can expect depends on who you are and where you are on the value staircase. Are you still in graduate school and just have an idea, or are you the soon to be ex-director of marketing at a successful Net startup. Do you have a product or patent? Do you have revenue? The answers to these questions can affect the value of your company, but don't get hung up on negotiating price with Angels. All serious Angel investors know about the value staircase, and they know that eventually it will be appropriate for you to raise $5 million from a venture capital firm. It is reasonable to give an Angel investor 20% to 30% percent of your company in the first round of funding. But remember that these first initial investors will be diluted substantially in subsequent rounds. By the time of your IPO, their stake may be only a few percentage points.

The key points, however is to negotiate with your investors in a spirit of partnership. Just like your first investors deserve a special place. Don't try to negotiate with an angel the way you would with a venture capital firm. Similarly, don't waste a lot of time with an Angel who thinks his $50,000 is a major financial and accounting endeavor that justifies you playing 20 questions forever. Smart Angels are often less concerned with valuation and more interested in how you handle yourself. Are you headstrong and strident or reasonable and flexible. Similarly, if your Angel rubs you the wrong way during the negotiation, perhaps you should get a financial backer you can relate to better. Remember that the tough times are still to come. Once the Angel investor writes you a check, you're married to him or her for the life of your venture. Regardless of the challenges you face, stay positive and persistent!!

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This web site contains "Trademarks" and "Copyrighted" material licensed to other entities and cannot be reproduced, altered, or used in any form without prior written permission. Please read our Terms Of Use for compliance information.