Three (3) Do's and Dont's for Financing Tech Startups
September 22nd, 2011
By Angela Slezak
We are in an Entrepreneur Revolution. Clate Mask, author of Conquer the Chaos, wrote in a VentureBeat article several reasons for the revolution including corporate disillusionment, an expanding workforce and a recession. He also noted technology's role, specificially the technological power shift and the promise of overnight success through technology.
The Internet has allowed entrepreneurs to conduct business without the expense of “brick and mortar.” Some entrepreneurs have phenomenal success in cyberspace which encourages other “techies” to give it a try. While Internet and technology startups do not always need physical office space, they still need funding for critical research and development time. Funding a technology startup means planning expenses when there is nothing yet to sell.
There are several funding options in Ohio, thanks to the financial and peer support of local organizations. Technology startups have the support of local incubators like TechColumbus (Columbus), JumpStart and LaunchHouse (Cleveland), Inc@8000 (New Albany), CincyTech (Cincinnati) and seed money through funds like the Ohio Third Frontier Fund.
According to Inc. Magazine (December 2003), borrowing from family and friends is the most common way to finance a startup. That’s an option too, but don’t forget to provide to your friends and family what you’d provide to a bank – a detailed business plan.
Mary Slane of Slane Financial works with Central Ohio entrepreneurs and helps them use their financial portfolios to find funding. Before quitting a full-time job to begin your technology startup, Slane offers these three Dos and Dont's:
DO
Save enough money for your business AND your living expenses. Budding entrepreneurs often save for the business, but forget to save for the living expenses that will be needed while acquiring customers. Slane suggests at least six months of living expenses.
Create a business plan. This is a well-known fact, but in the excitement of a new business this important step oftenfalls by the wayside. The business plan will allow you to see clearly if you have saved enough to manage the business and your living expenses during development.
Look at alternative funding. An example is issuing a loan from your 401(k). The 401(k) you earned on your last full-time job offers flexibility that you don’t want to forget.
DON’T
Combine your personal and business expenses. If you do, it will make filing your taxes much more difficult, time consuming and costly.
Forget about your life, health, and disability insurance needs. Often these were provided for you if you previously worked for a larger company. Now you must determine how to meet these needs on your own.
Manage your budget from your checkbook. Use one of the many software packages available for startups. Slane’s favorite budget-management tool is Quicken because she finds it easy to use and affordable with great reporting capability.
And one more thing: DO act on that urge to create a technology startup, just remember it having a great idea is only the first step.
Angela Slezak
