Funding for dummies…one
You dream, you write, you pitch.
If you put your heart in it and have an idea with merit you collect, build, sell, retire and live happily ever after. You never have to ask, borrow or steal another dime since the millions of dollars you have put aside as a result of your efforts are more than enough to take care of you, your loved ones and everyone else in the neighborhood.
That is how the world works according to HBS cases, best selling success stories and three hour capital raising workshops for dummies.
I have been raising itsy bitsy little amounts for about a decade now. Admittedly, they were all for small business and a large majority of these dreams failed, but the lessons I learned about capital were very different from the conventional wisdom I bought when I was younger.
Here is how it works in the real world.
A summary of our most recent round of capital raising activity at Alchemy spread over the last 12 months.
- Mortgage on parent’s home – 25%
- Mortgage on office property – 35%
- Debt – friends and family – 35%
- Pure equity – friends and family – 5%
What does the above list tell you?
Let’s get some reactions in and we will do the second round of this post.
The first thought that came to mind was: the banks and lenders don’t know how to value the company’s soft assets, nor its future cash flows.
Of course, the sad truth is most modern accounting systems don’t know how to do that either, which is why IT based companies, especially software companies, have such a hard time (and conversely, when VC’s are riding high, completely pathetic ideas get humongously funded).
In India, Infosys has been valuing its human assets (as part of its annual reporting) for around 10 years or more now, but frankly I don’t know if that is relevant to its cashflow as yet ie whether it has converted, or even needed to convert, that asset into monetary value on the balance sheet.
I am glad that you didn’t wait for comments before you went ahead with this series (Funding for dummies…), but of course the fact that you had locked out commenters may have contributed to your decisiveness.
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