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What You Need To Know About Getting Debt And Investment In Your Business

Summary

Investment

  • In Toronto, VCs wanted to see you were in an incubator like we were, had hockey stick traction and 25,000 in monthly revenue. If we had those things we wouldn’t have needed VC money because we could pay for exponential marketing scale ourselves.
  • If you’re not in an incubator or have connections in that industry it’s tough to even get in the room with these guys because they have so many people pitching them deals
  • They can afford to be picky because they have money, they’re the buyer, and they have what everyone wants
  • They also want to hear big revenue projections, they’re not interested in companies aiming to do a few million a year as we found out. This is because VC’s have hundreds of millions of dollars in capital they need to deploy, and they know 90% of the companies they invest in will fail, so they need to hit big winners on the companies that do succeed
  • A client I have who’s secured millions in financing said VCs operate more like entrepreneurs than banks and are interested in the dream, the big vision and a company with a charismatic founder, they’re home run hitters

Debt

  • Getting debt is a completely different ballgame because banks operate completely differently than VCs
  • My clients also secured millions in debt and broke down for me that pitching a loan is not about dreamselling its about consistent revenue over time
  • Banks will punish you for dreamselling, what they want to hear is that you’re cash flow positive and will do more of what’s already making you money
  • Bankers are bean counters not ex entrepeneurs (like VCs), they are risk averse
  • Bank officers don’t like risk they just want their 6% or whatever the interest rate is over the next decade
  • They also want to build a relationship with you as someone they can loan more money to over time and count on you to pay it back
  • Banks are similar to VCs only in the sense of having revenue targets (because they have shareholders to please) which means they need dependable people to loan money too because they have literally billions of dollars they need to loan out at interest
  • Dan Pena describes getting a bank loan like this: “Borrowing money from a bank is like having sex. You both want it, need reassurance of your intentions – and foreplay.”
  • Dan Pena also has good tips on getting business loans in his book “How To Make Your First 100 million”
  • A lot of guys talk down usury and fiat currency but debt is a magnifier, if your business is already cash flow positive and you can get millions in debt to pump into marketing that scales, debt can make a lot of sense for your business – leverage is the fastest way to 10x
  • More than new clients, new territories, cutting costs, nothing scales your business faster than leverage
  • The other great thing about corporate debt is you’re not liable for it, unlike personal debt which avoid like the plague
  • That said you don’t want to get a bunch of leverage in advance of a profitable business model for a low margin business – eg. getting a loan with your house as collateral to open a Subway franchise that you don’t even know will be profitable – as opposed to getting a loan for to spend on online ads for your already profitable, high margin, high ticket, residential real estate business
  • Of the two I’d much prefer debt as opposed to giving away a piece of my business, with that said my founder-based lifestyle business (especially some of the content) is not that attractive for either, empires sell much better than lifestyle business for both VC money and debt