Hello, this is Dr. Jim Watson, president of the growth strategies International. Welcome to How to develop a new product and take it to market. This is the final lecture of the of the course. We're talking about profitability analysis. In the previous course, we talked about getting developing your your startup expenses, and now we're talking about how to obtain financing to get your business started. So there's basically three different ways you can finance your business.

There's equity, equity, you're giving up ownership of your company, there's debt debt, you have to pay back a loan with interest. And there's grants and contracts, grants and contracts there. You aren't giving up equity. You don't have to pay the money money back, but it's probably the hardest of the three. But we'll cover off all three here and you can make a determination which path you want to go I would recommend a combination of paths depending on where you are in your in your product development process and launching the business. So with equity, of course, there's a personal savings.

Most people that start a business, they use their own personal savings is about the prototype and test it in the marketplace. I've done that plenty, plenty of times, until you have some market traction and you're able to attract some outside investors. The first ones you'll lean on are friends and family to help you out you may give them some ownership in the in the company with where they'll get a return on their investment, if you are profitable, and angel investors. Angel investors are people like myself who are retired, who have raised enough income that they are interested helping other businesses start their business and they're willing to risk the assets that they have that possibly they'll make a better return than they can. On the stock market stocks or bonds or any other type of investments. Then there's debt.

There's borrowing money, friends and family borrowing money from angels with the with the interest rate return, or taking out bank loans. And there's crowdsourcing to Kickstarter is something you can use where you can test your product out there. But there's also ways that you can raise equity by crowdsourcing, and we'll talk about that finally, there's there's grants and contracts. And there's couple websites here. grants.gov is where you can find probably about 10,000 grants a year. If you can find one that fits and you know how to write a proposal or grant application is very competitive.

But it's always a good source of money if you if you qualify. A particular type of grant that I specialize in is SBI er.gov. That Small Business Innovation Research, I work for the Air Force, Small Business Innovation Research Program Office, and I helped a lot of entrepreneurs get started, get their company started some million dollars or more to help develop your product and take it to market but it has to meet a federal need. So let's talk about each of these typical sources of funding and this was a coffin foundation did a survey of the 5000 largest growing companies in the US and found it most entrepreneurs starting their company they started off with their own personal savings and bank loans and credit cards and friends and family and business acquaintances. Very few were able to get funding from angels and venture capital firms and government grants dot that they can't but they usually have to be further along in developing your product and showing that you've got some market traction, you actually have some sales out there.

So it's not as as high risk. Here's a great YouTube video from the Kauffman Foundation on where to entrepreneurs get get their money. I encourage you to watch it. It has some great points on startup financing. This was a chart that I got from the angel capital Association. And it shows that early on and then the technology discovery and the proof of concept and initial design, where we are at where we were on pre commercialization.

A lot of companies got their money from Small Business Innovation Research grants that I mentioned, from crowdfunding from friends and family. From incubator groups. If you have an incubator in town, you can investigate. Getting in with an incubator. I started Link by being accepted by Arizona technology incubator and they helped us with put together business plan and introduce us to angel investors. So we raised a million dollars to get into production later on as you as you get into develop build tests and scaling your your business now you're more into a venture capital and and loans where it's less risky.

You're probably asking for more money than two. Here's a good videotape that Andrew had produced and about bootstrapping. And the, the the point that the point that he makes here is that if you can get away from if you can bootstrap your company where you can basically with your own money, plus whatever little revenue that you're getting, and keeping your costs very, very low. If you can survive without getting Alone where you have to pay back or giving away equity in your company, you're much better off. So by all means if you can bootstrap your company to the point where now you've got some real market traction, and you got some real valuation in your company, that if you do have to raise capital, you're going to get a lower bank rate loan, and you're going to be able to get more capital for less percentage of equity because you've built up the valuation in your company.

So take a look at that video on bootstrapping. And then we talked about stage investments when I showed you the angel capital Association chart, later on, when you when you do have built up some value in your in your company, where angel investors will be interested in later venture capital groups which is which is a group of of institutional investors This tells you about the difference between angel investors and venture capitals. So be sure to check out this video on entrepreneurship.org, the founder school, and there's a series of videos in there in how to deal with angel investors and venture capital firms. So let's say you are going to go to pitch to a, an angel investor, you've got what what they want you to do is to initially come in with a pitch deck and if they like your pitch deck, they'll ask you for a business plan.

And I can help you with a business plan. But the pitch deck is you want to have a chart that lists the team the background specifically what qualifies you to start the business? relevant experiences, make sure you have your team well rounded out. What is your vision, what you intend to accomplish? what problem are you solving What is your solution? Why is your solution better than anything out there than the competition?

When you're when you should have your product developed, when you talk to the investor, you should be able to demonstrate the process, you have a video of it or you can actually demonstrate it there and make it an awesome video, traction, show charts that you're getting market traction that customers are interested that you've that you've done some surveys, and you've made some sales, hopefully some initial initial sales, describe your business model of how you're going to make money or are making money on your on your product, and then a chart on your competition. Who is your major competitors? And why do you think that you can beat the competition? You're just not another one of the pack? You have a blue ocean strategy. Describe the opportunity that's out there.

What opportunities are you going after? How do you base your your sales for forecast so do your do your analysis to justify your sales forecast, and finally, finance What's the startup capital? How much money are you asking for? What are the sources and uses of funds? So how much do you need? And what are you going to use it for?

What milestones are you going to achieve? What is your breakeven point? What is going to be the return on investment for the investors and When are they going to get their money money back? Eventually, you're going to be doing Additional rounds of financing, perhaps will turn your LLC into a corporation where you do a series a round a series a round means you're selling preferred stock to a set of investors. So you want to think long range in planning as different stages of investment to grow and scale your business. Let's say you're going to be getting a loan.

A lot of people get get loans initially, if they don't get grants before to get their business started before they're able to talk to angel investors. What a loan officer looks at are the six C's Your character, your credit history, what capital or equity that you have into the business? What's your capacity to repay the loan? So remember, we talked about the cash flow projection, very important for the business loan, what kind of collateral Are you going to bring to the party? And then what confidence they have in you and what are the conditions, terms or conditions of the loan that you're asking for. Finally, I want to talk about government grants and contracts.

I'm going to have a whole course on how to win government grants and contracts to finance your new product development. I have an 85% success rate. Last year I helped clients obtain millions and millions of dollars from from Small Business Innovation Research grants. If your idea is truly innovative, if you require scientific research to determine if it's feasible, this there's 11 different government agencies will provide up to a 1.5 million dollars to develop and test your prototype, you own the intellectual property, the government doesn't own it. There's no debt to pay back. If you've already developed a product and it's being sold, it's too late for this this grant, your concept usually has to meet federal r&d needs unless it's going to have a big economic impact and the National Science Foundation will be interested.

So go on ww fbi.gov, put in some keywords and what your concept is and see what pops up and contact me if you need help putting your grant together. So their focus is on commercialization. So they're going to want to see many business plan and your grant application of once you develop this product, how you're going to take it to market and make money on it. in it are the potential customers and strategic partners who have expressed an interest. Finally, I'm going to summarize here with some key points in that financing can be obtained through bootstrapping, bank loans, equity, investments, and government grants and contracts. I thank you very much for joining me for this exciting courses exciting journey of taking your product to market and starting your new business.

I wish you the very best success. And please contact me if I can be of any help whatsoever. My contact information is shown on this slide. Thank you and have a very blessed day.