Funding a Startup
The Maddening Machinations of Money Raising
By John A Logan
It started very quickly.
Within days of posting on www.fundingpost.com , one of the many websites created for entrepreneurs to post summaries designed to draw the attention of potential investors, an email inquiry from the AngloAmerican Investment Group and one Anthony Oppenheim. Mr. Oppenheim explained in his email that from his Peachtree St. office in Atlanta, he represented a consortium of private investors and mostly European family trusts that were specifically looking for investments in globally oriented businesses like ours. They don't charge any up front fees to review business plans. They represent the decision makers and can write checks for the right investments, etc. Please call him to discuss the venture.
Wow! Could we be that lucky? Although the email came from a Comcast.net address, it's not unheard of for even big investors to use common email addresses. It contained phone numbers and address information that matched the Atlanta area and surely a huge conglomerate like the Anglo American Investment Group would clamp down quickly on any scam artists brazen enough to openly use their brand. We were pretty excited.
A phone call to Mr. Oppenheim gave good reason to believe they were for real. A professional demeanor, the right questions asked and quick answers to any concerns we had. They invest in people as much as projects. We'd be invited down to Atlanta to meet him and his associate Al Dubin ("D-U-B-I-N, yes that's the correct spelling" the conversation went as I took notes) and review our business plan in detail. FedEx 10 copies of the business plan before coming down. A non-disclosure agreement was not a problem. If they like what they see and hear we'll quickly see a Term Sheet. He'd send details about the accommodations in Atlanta. "Awesome" my son said.
Then things took a strange turn. The next email read like a bad mass mail piece. They had reviewed our business plan (funny?we hadn't sent them yet) and were prepared to invest the full amount. They boasted about investments made in places like Shang Hi (interesting spelling for Shanghai). A request from us for references or contact with legitimate past investments as our real due diligence kicked in resulted in a email that asked us to supply more information than even the government knows about us. And unfortunately Mr. Dubin's name had suddenly changed to Dublin.
The jig was up.
One look at www.ripoffreport.com would have saved us some time since these characters have been at it for a while and apparently the con is to get entrepreneurs desperate for funding to believe that Anglo American will gladly fund them if the entrepreneur will pay the travel expenses of one of their representatives for site visits and setting up an offshore "escrow" account for safe keeping of the funds until the deal is done. Upwards of $40,000.
Entrepreneurs, like most creative people, are an odd lot (I can say that being what's called a "serial" entrepreneur) and matching them and their projects with them right Angel investors is a often a long, incredibly frustrating and expense process. Hundreds of ideas die on the vine for lack of the life giving flow of cash. And anyone who thinks the process is easy, has had way too common an idea, asked for way too little investment and probably given up way too much equity.
The costs of raising capital to start any business from scratch are mind-numbing. If you're doing a securities offering in even the most basic form, a good attorney will be $200 per hour and up. And your accounting firm better be top notch as well. Want a Private Placement Memorandum? Better have a nice house that you're willing to mortgage to the hilt or sell that brand new Lexus in your driveway that you paid cash for last year. Wait a minute. You don't have either one of those? You spent every penny of extra cash you had to developing your idea to the business plan stage?
As my cronies from the Great Lakes states say "You're S.O.L." The days of investing in just a concept are long gone.
Today it's all about proven business models in the form of an already operating business generating some form of revenue from somewhere. The friends and family round of funding completed and likely one or two major investors from your own network of wealthy folks is the sweet spot for attracting "early stage" Angel investment. And some sectors are naturally sweeter than others. Being situated near the Research Triangle Park area of North Carolina, a virtual incubator for bio-tech, life science and high tech business ventures, trying to sell local Angels on an idea for the formation of a new insurance company, no matter how sexy the plan, rarely even makes it into the evaluation process. The Angels of Silicon Valley look mostly for ideas in a different sector that needs no description.
In fact, most Angel groups will readily identify those business ideas that they're interested in and those they're not. Unfortunately for me, my particular venture falls into the categories of both a startup and a highly uncommon business sector for Angel investment. Add to that our need for $3 million in funding and the combination scares most Angels groups away, let alone individual investors. Three million dollars starts to encroach on the institution investment landscape controlled by venture capitalists and investment bankers. Five million dollars is the limit for most Regulation D offerings without getting into investor sophistication requirements. Get into that arena and be prepared to invest in the high five figures just to get started looking for more money, with no guarantee. Who are these entrepreneurs that have that in their back pocket? No one just getting started, that's for sure.
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