Working Capital (Debt) Financing For Entrepreneurs: Heather Onstott, Director Of Small Business, LaunchCapital (Part 2)

By guest authors Irina Patterson and Candice Arnold

Irina: What kind of companies do you prefer?

Heather: We are industry agnostic. What that means is that we don’t really focus on a specific sector or a specific type of company. If you looked at our portfolio, you would see that we had a concentration of sorts in mobile and Internet, but on the small business side, it’s really more focused on those mom-and-pop type of businesses.

So, we have a coffee shop; and we have a manufacturing firm; and we have a digital photography conversion site. It’s a bit all over the map. I think that that’s because at seed stage, you run into the same obstacles getting a company off the ground as you do in any industry. They’re not, often times, unique obstacles.

Irina: What is the usual dollar amount that’s invested?

Heather: We will invest, on the venture side, up to $200,000 and, on the small business side, up to $150,000.

Irina: What is the range per a deal?

Heather: It’s, typically $50,000 to $150,000. I would say that, on the venture side of things, that $200,000 is, typically, a bite of a syndicate.

So, often times, the range of the funds that are being raised is somewhere in the $600,000 to $750,000 range, of which LaunchCapital will take about a $200,000 bite. Now with the small business side, often times, I go it alone, so it’s just me in the deal.

Irina: How long does it take for a company to receive funding?

Heather: I think with the venture guys, they generally aim for an eight- to ten-week process. I would say I’m probably only slightly shorter.

I’m probably in that six- to ten-week process, and that’s from the time that you pick up the phone and talk to me for the first time to the time that we sit down with attorneys and strike a deal.

Irina: How do entrepreneurs usually pitch their businesses to you?

Heather: Good question. A lot of times, we’ll see them at events, and then I will touch base with them afterward and say, “Hey, I’d really like to talk with you a little bit more.” We will talk on the phone. Sometimes, they’ll come into our office and do a more formal pitch.

Sometimes, we meet at a coffee shop because they’re just not ready yet for funding. So, I would say that it’s from all manner of formal pitches to all the way to informal conversations.

Irina: The same thing applies for the venture side?

Heather: Yes. Absolutely. I think we run things about the same.

Irina: Do they think in terms of the valuation of a company when they invest?

Heather: The venture side does, absolutely. I think that’s one of the hardest things in seed stage investing, getting the valuation right or, at least, to a place where everyone agrees whether it’s right or not. But because we are often not the only people in, it really is coming to a consensus with the entrepreneur what we think, reasonably, the valuation of the company should be.

On my side, I actually do not have to do a valuation. We work closely with the financial projections of the company, and in the end, come up with a small business loan that should fit the needs of their current financing request. The equity percentage that we take is based on those projections and what the risk price needs to be so that we can gain a return and the entrepreneur can afford to pay it.

Irina: What’s the difference between a conventional loan and your loan?

Heather: Ours is a debt-equity blend, so it’s different from a conventional loan.

With a conventional loan, if I were a small business owner, I would walk into a bank. If it’s a startup, typically, what a bank needs is to see your business plan, and they look at the financial projections. But they’re really concerned about what we used to call the “three C’s:” character, credit, and collateral.

They want to see that your credit is in great shape; that you have collateral sufficient so that if the business goes belly up, they can claw back as much of their principal as possible by liquidating the collateral; and then, of course, character is what we all look for, which is, you know, “Is this the right management team to take this business to success?”

This segment is part 2 in the series : Working Capital (Debt) Financing For Entrepreneurs: Heather Onstott, Director Of Small Business, LaunchCapital
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