Bake Sales, Garage Sales, and Reality

NASA Tech Briefs, Aug 2005 by Price, Kevin J

Great things are often born from small beginnings. Bill Gates started in a dorm room and later worked with Paul Alien in a garage on the road to Microsoft. Steve Jobs began making and selling the earliest of personal computers in a garage. These later became Apples. Later, Michael Dell did the same in his development of Dell computers.

Arguably the most famous "garage-trepreneurs" are Bill Hewlett and Dave Packard. These two Stanford-educated engineers began in the late 1930s developing innovative products in the sound equipment arena and evolved into business machines. The company gathered steam fairly quickly, both due to their creativity and a second World War that helped drive business. In 1939, the two ended the decade with two employees and a little over $5,000 in revenue. By the end of the next decade, they were at $2.2 million and 166 employees. Today, it is a company with revenues of over $50 billion and more than 140,000 employees. Not bad for a start-up!

Great products still have great beginnings in garages, and the financial infrastructure to take a company to a larger platform is better today than in any time in history. In each of the cases above, these companies needed help to go to the "next level." Hewlett-Packard found assistance in brisk and early sales; Steve Jobs and many of the others, in angel investors. Very few companies can make it on their own. It is difficult to sustain a company without support.

Many modern product developers want to hold on to their innovation. The thought of giving any part of it to others in order to have the finances necessary to grow is sacrilegious. To them it is like giving up their own children. Unfortunately, these companies seldom make it because they don't have the means of protecting themselves from the competition that will replicate their product with little challenge, or cannot ever achieve the economy of scale necessary.

So where do people go for help? What are the appropriate expectations when asking for it? Most of these developers knew what they needed - money, expertise, management, and contacts. These are the essential elements that have fueled businesses from the beginning of time. The challenge is acquiring these things without losing too much control or ownership of one's business.

Early on, people look everywhere for money - garage sales, bake sales, and Mom and Dad. But to be taken seriously and to be seen as credible, businesses need to show a solid leadership team. They must convey a professional image from a marketing perspective. All of this costs more than what you can get from selling an old stereo or cupcakes, and usually even more than available from the most generous parents.

When a product developer seeks funding there are several challenges. What is an appropriate amount to ask for? What percentage of the business will I have to split in order to get adequate funding? What is adequate funding? What kind of interest rate can I expect to pay (if any)? When would I have to pay it back (if ever)? A developer likely will need help from an advisor on the best route that is right for him.

Furthermore, developers often don't know who to ask. The neighborhood bank? The credit union? The affluent and retired medical doctor who appears to have money to spare? The venture capital firm? The list goes on. The local bank typically will not be interested in a start-up. Early on, it will be friends willing to take a big risk, and maybe angel investors. Later, it will likely require investment firms or large companies.

Finally, product developers often don't know how to ask for money. Is it with a business plan? A Private Placement Memorandum (PPM)? A nice letter? How does one acquire the necessary capital?

Depending on the revenue source, a PPM is the standard document for acquiring capital. This document details projections of both expenditures and revenues. Furthermore, it should provide a marketing plan and information on the key players who will be developing the company. The quality of this document likely will have a tremendous impact on the type of response you will get. Equally important is the quality of the people who represent your product. Investors see a direct link in the quality of the people and the quality of the product.

When you decide to take your business to the next level, consider the assistance of a quality angel group or firm. Such firms are often perfectly positioned to help in all these areas. Consider such a route and ask many questions. The angel route is often the best way to success.

Technology Tree Group (TTG) is a leading national angel investment firm specializing in the essential elements of business creation and development. TTG works with early-stage start-up ventures, and its constituents include government labs and agencies, venture capital firms, angel investors, and entrepreneurs. Receive a free copy of the white paper "The Essential Elements" (a guide through the angel investment process) by visiting www.technology-tree.com or send an email to info@technology-tree.com.