ADVERTISEMENT

Alec Johnson

,

Ask the Consultant: Finding outside investors

  • July 21, 2013 - 2:11 PM

Question

How do we find investors who are not family or friends that will invest at the $50,000 level? Our company is Smashing Golf & Tennis. We are based in Chicago and 100 percent USA made. /

Kelly Daugherty, Managing Partner, Smashing Golf & Tennis, www.smashingonline.com

 

Answer

Smashing Golf & Tennis is in the sweet spot of capital needs. The company has passed through the typical start-up phase and now needs to build a sales team, production and marketing, and have enough remaining cash flow to manage growth. It’s the most exciting and most difficult transition point for a small, but growing business.

Angel investors will typically invest in the $50,000 to $100,000 range, are more patient than venture capital, and understand the market, in this case golf and tennis. There are several points to be addressed before approaching private angel investors. First, it is useful to consider defining the optimal investor for the business. What have they done in their careers; do they have experience and insight into apparel production and marketing to golf and tennis markets? Do they use your product and can they become advocates for it? Can they provide future rounds of investing? What other qualities would make an investor a great fit for this investment? Do you want passive investors or active investors who will be asked to provide advice and guidance on key decisions?

Next, management needs to prepare the business case. A long list of items should be developed to address the history of the company, future growth expectations, sources and uses of new capital, projected return on investment as well as a strategy to liquidate investors. This is a good time to develop a legal team with experience in managing the fundraising process.

This round of fundraising is much more strategic in nature and deserves to be treated as such.

About the author: Alec Johnson, associate professor of entrepreneurship, University of St. Thomas, Opus College of Business, http://www.stthomas.edu/business/faculty/directory/Johnson_Alec.html

© 2014 Star Tribune