We, at OPEN Forum, are always looking for new ways to interact with the small business community. So we recently launched our OPEN Forum Tumblr page to tap into one of the fastest-growing networks on the Web. On our Tumblr page, you'll find highlights from OPEN Forum, along with our editors’ picks from around the Web. But you'll also find a way to get advice directly from our small business experts: the Ask OPEN Forum page. The following question was submitted by a reader from South Africa. Finance expert, and OPEN Forum contributor, Mike Periu provided the answer.
Q: I'm a business owner in Johannesburg who is currently in the process of trying to launch an Internet business. It's a fascinating innovation I've spent over 14 months in sweat equity researching and designing. The concept is sustainable and three-dimensional and the projected numbers look great! However, I have no capital, no collateral to get capital and no friends with the resources to get involved. A broker friend of mine said she'd get me some meetings, but is it realistic to hope that I could hook an investor with no financial security backing me? Or is it possible to sell 20 or 30 percent of a business that hasn't left the ground yet?
A: I first suggest taking a step back. If you have spent 14 months researching and developing the product, then you most likely have interacted with potential customers, potential users, potential suppliers, industry experts, etc. These are the people that can give you validation that there truly is a market for your product. If you haven't had these types of conversations then I suggest that you do that first before seeking capital or thinking that you have a killer product. If you have had those interactions then those people are your initial pool of potential angel investors. People that know the market and understand the value of your product and also believe it has great potential can serve as a great source of potential investment.
Having these type of people put their money into the business is the best kind of validation you can obtain and will make it easier to seek out financial investors when the time is right. They are also the type of investors that can help you grow your business through advice, connections and expertise. If you can't convince them to put money into the business, you need to understand
why and address it first.
Secondly, you have to put some money into the business out of your own savings. You must have skin in the game and your sweat equity isn't enough. If you own a successful business then you should be able to put some money into this business. If your current business isn't doing well and hence you can't put any money into the new business, then you should first fix (or close) that business before pursuing this one.
Good luck! Keep us posted on your progress.
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