It may seem like a scary time to think about growing your business, with the stock market bouncing around and the economy facing a recession. But to Derek Johnson, CEO and founder of Tatango, this is a perfect time to raise capital.
Many investors are not seeing the level of returns they want from the stock market and may be looking to invest in other areas, Johnson said.
“They’re looking to diversify, take some high risks and hopefully get some high pay-outs,” he said. “Now could be a great time for a startup or an Internet business.”
Raising venture capital
Johnson launched his group-texting business last year out of his parent’s basement with funds raised from family and friends. The business grew quickly and Johnson wanted to keep it that way. After receiving a sizable investment from an investor in the Bellingham Angels Group, Johnson was able to take his business downtown and keep that growth rate going.
Tatango wouldn’t be where it is now without its investors, Johnson said. But finding the right investors can be a long process.
“If you’re a startup company, you need to get out there and meet everyone,” he said. “Shake a lot of hands and make sure people know what you’re doing.”
While networking, be prepared to show potential investors statistics about the company.
“Have all your financial statements and growth charts,” Johnson said. “Investors have to make a decision in 30 minutes or so. They have to get as much info as possible. We’re constantly updating our financials and putting together projections for the future. Our projections change weekly it seems.”
And once you do get investors, keep them updated on the company’s status. This will help keep investors from becoming concerned about their investment, Johnson said.
“If you don’t talk to them for six months, they’re going to be curious,” Johnson said. “I send weekly e-mails to our investors and it takes me five minutes. I never get a concerned investor.”
Applying for business loans
For those businesses that may not want to take on investors but still need extra cash to continue growing, bank loans are always an option, said Doug Dostal, senior vice president of Peoples Bank. Even with the news of tightening credit markets, many businesses can still qualify for a loan.
But do your research before applying for a loan, Dostal said.
“Staying in tune with what a bank would see as high, moderate or low risk is a good idea,” he said. “Keep in contact with the banks and make acquaintances with business bankers.”
Once you decide to get a loan, be prepared to present the bank with a sound business plan that is supported by market research, Dostal said. Set goals and budgets for the first year and even as far out as ten years.
“These are the types of questions banks are going to ask,” Dostal said. “Some of the problems we see a lot are lack of initial capital or too brief of a financial perspective or business plan.”
It may seem like a lot of work, but investing in your business pays off, Johnson said, whether it be moving to a better location or investing in better equipment.
And the reality is that “it takes money to grow your business,” Johnson said.
