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A Small Business Grant that Really Exists

One of the most persistent myths among would-be business owners is that Uncle Sam and other organizations dole out free, no-strings-attached grants to business startups. With rare exceptions, it doesn’t happen. Yet the fairy tale persists and “small business grants” has long been one of the most popular searches online.

There is, however, one small business grant program that really does exist.  It’s called the Small Business Innovation Research (SBIR) program. SBIR offers specialized high-tech development grants and is administered by the U.S. Small Business Administration.

Eleven different federal agencies participate, including the Departments of Energy, Education, Agriculture, Commerce, Defense and Transportation, plus the Environmental Protection Agency, NASA, National Science Foundation (NSF) and others. These agencies openly invite small firms to submit their technology problem-solving proposals for possible funding.

Be aware, however, that SBIR is a highly-competitive and highly specialized program focused exclusively on developing new technologies and rarely if ever funds startups.

But if that’s what your business does, SBIR is definitely worth a shot. The SBIR Program stimulates technological innovation in the private sector by funding research and development (R&D) at small companies.

Consider Irvine, CA-based ChromaDex Corp., a small firm that develops novel, natural ingredients to fill unmet needs in the dietary supplement, food, beverage, cosmetic and pharmaceutical markets. ChromaDex was recently awarded a $500,000 SBIR grant to fund commercial development of plant-based antioxidants (called anthocyanins) for use in nutritional products.

Anthocyanins are naturally occurring plant pigments or colorants which contribute to the vivid coloring of berries and are proven to aid in protecting against oxidative stress and control blood glucose levels to assist with weight management and diabetes.  The grant money came from the National Science Foundation.

ChromaDex will use the grant, along with its own resources, to complete the work necessary to commercialize anthocyanins.  It then plans to market and license these anthocyanins to food, beverage, cosmetic and dietary supplement manufacturers.

Funding R&D in a small company is tricky business, often requiring large amounts of cash with an uncertain outcome sometime in the future. The beauty of an SBIR grant is that it generally comes with no strings attached. And the federal government has over $2 billion it must spend annually on small business technology development. Money is used for all stages, from concept to prototype to marketplace.

A typical SBIR grant is about $850,000, but can go to $2 million or more, according to Fred Patterson, who co-founded two companies that received almost $50 million in SBIR grants. Patterson now runs SBIR Coach, which counsels business owners on how to seek SBIR funding.  He says that while about 15 percent of SBIR proposals are funded, the odds can be as high as one-in-three at some agencies.

Government agencies that participate in the SBIR program regularly solicit proposals from small business to solve specific tech-related problems. Business owners and entrepreneurs can search the listings to find topics in their market or industry. Agency listings will also include details on proposal content and submission guidelines.

“The agencies review the proposals, and rate and rank them according to the degree of originality and innovation, technical merit, credibility of the proposing team and the future market potential,” says Patterson. The best proposals – about 1 in 7 on average – get the grants. There’s no interest and no equity to give up.

The basic qualifications to apply for an SBIR grant are simple:  The business must be organized for-profit, more than 50 percent American-owned, located in the U.S. and independently operated. The principal researcher must also be an employee of the business.

For more details, start at the main program website, SBIR.gov.  From there you can link to current solicitations, SBIR conferences and events, state resources and past awards.  The part awards in particular are helpful to see the types of projects that have been funded, which agencies funded them, and the type of small business that was awarded the grant.

SBIR Gateway is another helpful site to visit.

Copyright © 2000-2011 BizBest Media Corp.  All Rights Reserved. 

A Secret Stash of Small Biz Capital

Small Business Investment Companies (SBICs) are one of the best-kept secrets in the world of venture capital.  These behind-the-scenes investment firms inject over a billion dollars annually into small firms. Yet they deliberately keep a low profile to avoid being crushed by businesses seeking money.

Last year alone, SBICs across the country pumped about $1.8 billion into 1,477 small companies.  Nearly 25 percent of that investment capital went to businesses that were less than two years old – firms that often need capital in the critical $250,000 to $5 million range that’s often not available through banks or private equity.

Some of America’s biggest and best-known brands got an early boost from SBIC money, including Apple Computers, Costco, FedEx, Intel, Jenny Craig, Outback Steakhouse, Staples and many more.

SBICs combine private capital with government sponsorship and are 100 percent devoted to small business. They often specialize, investing in firms by type, region, industry or other factors, and unlike most venture capital firms, SBICs invest for the long term.

New SBICs are being formed all the time.  New York-based Hudson Ferry Capital (HFC), for example, just launched a new $100 million SBIC to make “buy-in” investments in family-owned U.S. businesses. Tim Ross, an HFC Partner, defines buy-ins as “control investments with existing managers who retain substantial ownership positions; thus creating a common goal to transform a small or regional business into a large, integrated enterprise with much greater value.”  HFC has invested in 27 companies in industries such as manufacturing, building products and business services.

Best place to find SBICs and learn more about the program is the National Association of Small Business Investment Companies (NASBIC) website.

Copyright © 2000-2011 BizBest Media Corp.  All Rights Reserved. 

A Way to save Big on Business Banking

Millions of small business owners could be paying less for loans, lines of credit and business checking accounts, and earning more on savings, but aren’t taking advantage of it.

Thanks to rule changes that have loosened membership rules and opened the doors to more small businesses, more business owners now qualify to join a credit union (CU).  Yet public perception of what credit unions are, what they offer and who can do business there is foggy at best.  Credit unions work much like banks. Basically, CUs provide the same services but charge less for loans, pay more on savings and have far fewer fees.   When you open an account you become a “member.”  That’s why they talk about “joining” a credit union rather than simply opening an account at one.

And while you have to be “eligible” in some way to join a CU, there dozens of ways that can happen simply by living in a certain area, working at a certain business, attending a certain place of worship, or belonging to an organization.  The biggest attraction is better rates and lower fees.  Anything the credit union makes in “profit” is passed onto members (that’s you) through higher rates on savings, lower fees, and lower rates on loans.

Each credit union serves what’s called their “field of membership” – that’s the commonality between the members. You may be eligible to join a credit union based on your:

  • Geographic Location: Many credit unions serve anyone that lives in a particular geographic area
  • Family: Most credit unions allow members’ families to join. So if someone in your family is already a member of a credit union, you may be eligible too.
  • Membership in a group:  This includes churches, school s, alumni associations, and homeowners’ association.

To find credit unions you may be eligible to join, visit FindaCreditUnion.com, or cuonline.ncua.gov.

Copyright © 2000-2011 BizBest Media Corp.  All Rights Reserved. 

How to Find an Angel Investor

Need money to fund or expand your startup?  Forget venture capital.  For 99% of today’s startups, VC money is a pipedream.  Angels are the way to go.  They are more plentiful and better organized than ever, and hooking up with them has never been easier (not easy, mind you, but easier than it once was).

Consider Mark Risher who recently sought funding for his internet security firm Impermium. He found funding heaven at a new place called AngelList.  “Within hours of posting we had dozens of qualified, top-shelf investors and by the end of the day we were 100% oversubscribed,” he says. “At first we were reluctant, thinking the semi-impersonal list might be a last resort after personal introductions dried up. But my only regret is that I delayed for so long.”

Angel investors have become a key force supplying startup and early stage capital to tens of thousands of promising young companies yearly.  Angel investors are actively looking for ventures to back. Once conducted largely behind the scenes, the angel investment process has moved more into the open. Some angels act solo, but today’s angels are more likely to work through angel investor groups that have proliferated nationwide.

Angel investors and venture capital (VC) firms are different animals. Angels invest mostly in startup and early stage businesses. VCs provide growth capital for businesses further along. The good news for entrepreneurs is this: Locating angel groups, learning how they work, what types of startups they are interested in, and finding out the exact process for how they can be approach, has become easier thanks to websites such as AngelList as well as organizations such as the Angel Capital Association (ACE) and the Angel Capital Education Foundation (ACEF).

ACE is North America’s professional alliance of angel groups, bringing together over 6,500 angel investors. ACEF is a non-profit founded by the Kauffman Foundation, a premier organization that supports entrepreneurship. ACEF does not make investments, but provides information and links to support the process. The “Entrepreneurs” section will tell you:

  • If your type of business is right for an angel group investment
  • When to approach an angel group
  • What criteria angel groups use to select entrepreneurs to back
  • What process you can expect to apply for group funding
  • Whether you should expect to pay fees to participate.

The investment process has numerous steps, including an initial application, pre-screening, screening, investment meeting, due diligence and, finally, a term sheet offering if you make it all the way through. About one in three angel groups charges a fee to present your idea. For those groups that do charge, the average application fee is about $150, and the average presentation fee is $500.

FindVenture.com is another great place to look.  This site has partnered with leading venture funds and angel groups to form a kind of “capital exchange” that connects investors with small biz owners and entrepreneurs seeking funds.  FindVenture uses a computerized system to scientifically match investors and entrepreneurs. Getting your funding request on this site is a great way to help get yourself on the map.

You can also search for angels on the ACE website at AngelCapitalAssociation.org.  Go to the “Directory” section which lists most members of the organization. Groups are organized by state, region or country, such as California, New England or Canada. The directory includes a link to each member’s website where you can learn more about that particular group, including investment preferences and application process.

Here are three “must know” tips about finding and approaching angels, from the non-profit Angel Capital Education Foundation:

  1. Angels are not venture capitalists (VC).  Angels invest their own personal funds in a business. VC money usually comes from institutional sources. Angels also back startup and early-stage businesses, while venture capitalists prefer later stage companies. Individual angels invest $5,000 to $100,000, while VC investments go $2 million and up.
  2. To attract angel interest, be willing to give up some ownership or control of your business, and be able to show a significant return within 3-7 years, as well as a profitable exit strategy.
  3. Seek angel funding when: a) your product is fully developed; b) you’ve already invested your own money and exhausted other alternatives (like family and friends); c) you have existing or confirmed potential customers; d) you can demonstrate that the business is likely to grow fast and can pass $10 million in revenues within 3-5 years.

For small sum, tech startup backing, check out Y Combinator. If you have a startup idea in the software or web services area and need between $5,000 and about $20,000, step up and submit your idea. These savvy startup funding folks are more interested in good ideas than slick business plans.

Thinking of placing a pitch on AngelList?  Here’s their advice on how to write it:

“We look for the same things that early-stage investors look for:  traction, market and team. Social proof also helps when you’re trying to get a first meeting. So you need to kick ass in at least one of these areas.  Before you pitch investors, build a minimum viable product, put it in front of customers, and learn something about product/market fit.  If you can’t get this far on your own, find some idea investors instead.  Then write a 150-word elevator pitch and apply to AngelList. Our elevator pitch template is a good place to start. Spend time writing and re-writing the pitch until it’s awesome. Get feedback from good writers and entrepreneurs who have raised money.”

Copyright © 2000-2011 BizBest Media Corp.  All Rights Reserved. 

Best Ways to Beef up Business Value

If you hope to sell your business someday, the time to think about increasing its value is now. Too many business owners are shocked to find out the business they’ve been running isn’t worth nearly as much as they thought, says John Martinka, VP of Partner On-Call Network, a Kirkland, WA-based firm that helps small businesses prepare themselves for sale.

Here are 10 ways to make your business more valuable to potential buyers:

1.   Don’t let it be just you.  “Too many businesses suffer from the all-controlling owner who not only knows how to do everything but also insists on being part of everything,” notes Martinka. Don’t become a bottleneck.  Prospective buyers can be scared off if the shoes they have to fill appear too big.

2.   Avoid excessive customer concentration. Buyers dislike seeing a small number of key customers accounting for the bulk of sales. Work to diversify your customer base. You should also know that if you have a highly concentrated customer list when your business sells, you may be asked to include a so-called “erosion clause” in the deal that lowers the price if a top customer leaves.

3.   Keep financial statements and tax returns in line. It’s vital to have good accounting systems and financial safeguards in place, and keep accurate records and statements. Try to avoid adjustments or add-backs.

4.   Don’t be too dependent on a key employee. “A small company I know of recently had severe problems when their top salesperson left and took most of their accounts,” says Martinka. The problem can also arise with a technical expert, machine operator or indispensable office manager.

5.   Negotiate the right kind of lease. You might think a month-to-month lease is great because it offers flexibility. But buyers and banks think more about how expensive it is to move a business. In fact, for other than professional type businesses, banks are reluctant to lend for longer than the term of a lease, including options.  No lease can mean no sale.

6.   Keep your tech up to date. Use the expertise you have in your industry to get technology up-to-speed, show increased efficiencies (and profits) and sell for a higher price.

7.   Avoid any “off the books” cash. “There isn’t a CPA around who will let a business buyer pay a price based on unreported cash,” says Martinka.

8.   Grow your revenues. This one’s rather obvious, but true.  A business doing $1 in sales won’t sell for the same multiple of profits as a similar business doing $10 million. There are simply more risk factors associated with a smaller business. A minor hiccup to a larger firm can be a major disruption to a smaller one.

9.   Keep business and personal matters separate. Many small business owners have received lower prices or haven’t been able to sell a business at all because they’ve co-mingled their personal and business finances.  Sure, it’s sometimes easier to pay for things out of your own pocket, or have your business cover expenses that are really personal in nature in order to get the tax write-off. But, the bottom line, says Martinka, is that banks and buyers want to see profits. “Show a lot of profit, pay some tax and it will come back to you in multiples when it comes time to sell,” he says.

10. Make it a business, not a 24/7 commitment. Maybe you’re willing to work all the time, but most buyers aren’t. They may not have the same passion for your product or service; instead they have business skills to leverage what you’ve done.  Hire employees and learn to delegate.

Copyright © 2000-2011 BizBest Media Corp.  All Rights Reserved.