Working Capital (Debt) Financing For Entrepreneurs: Heather Onstott, Director Of Small Business, LaunchCapital (Part 7)

By guest authors Irina Patterson and Candice Arnold

Heather: Sometimes, [I would say to entrepreneurs] “I’m interested. Here’s what I’d be willing to bite off, but here’s what I think I need to see you put in place first.”

And then, probably, ten – believe it or not – never call me back, which is fine. They’re not ready. And then the last, probably, eight to ten others, I ask for a business plan with financial projections, and I take a hard look at them. Of those, that initial scan probably weeds out another five to eight.

I probably put two to five into deep due diligence, which means that we take a good look at what the market looks like, what their traction is. We call their customers. We talk to their suppliers. We do a pretty in-depth analysis.

Irina: So, you can fund an entrepreneur if he has only an idea on paper but has all the pieces in place and knows how he’s going to put it all together?

Heather: We can. Let me be clear, though. It is very difficult to do that because the entrepreneurs with the idea are, generally, the people who we have a great level of comfort with.

We’ve either worked with them in the past or they’re done it before, and we know who they’ve done it with. We’re very familiar with their story. I think I would be misleading if I were to say, “Yes, anyone off the street who has a great idea can come in and expect to be funded.” That’s not true. I think the odds are probably one in a million.

I think the way to best bolster your chances for getting that second look, which is critical, is knowing your business inside and out, so when you do get introduced to me, and I do get a chance to sit down for that 30- or 45-minute phone call, and we talk about what you’re doing, that you’re able to describe to me very clearly:

• what is the pain point
• what is your solution
• how you’re able to derive value or monetize that solution
• who the management team is that’s going to execute it and why they’re the best people to do that
• how long it’s going to take you
• how much money it’s going to take
• how far you can get on your first initial fundraise.

Getting those basics spelled out at the front and my understanding, “OK, yeah, I get it. I buy into it. Let me see what you’ve got.” Then, I’m more interested in looking at that business plan and the financial projections to go with it.

On the venture side, they’re more interested in listening to that more formal presentation, the formal pitch, and having them come into the office and meeting them face to face. That’s just critical, to get entrepreneurs to that place.

Irina: What are some other ways to find great deals?

Heather: My partner here, Bill [McCullen] sits in on a lot of angel group pitches. He has deep ties with some of the other angel investors here in Boston. So, he’ll often get invited in to sit through a couple of the pitches. He is very actively involved in listening to pitches elsewhere.

In Boston, we’re very fortunate. We have a great entrepreneurial culture. So, we do have incubators like Dogpatch Labs and Tech Stars that have set up shop here. So, we do get involved with some of those business incubators and go there to listen to some of their pitches.

We were very involved with the Tech Stars group this past summer. In fact, that’s where we poached our analyst here in Boston. He came from the Tech Stars mentor group, and he’s just been fabulous.

We will actively go places. I just finished Top Gun up in Portland, Maine. It is a program run out of the university, called MCED (Maine Center for Enterprise Development).

They gather some of the top entrepreneurs in Maine and run a business incubator program. They had a fantastic finishing presentation. I got to sit through, I think, ten presentations. I’m following up with two or three of them. I think they’re great companies.

This segment is part 7 in the series : Working Capital (Debt) Financing For Entrepreneurs: Heather Onstott, Director Of Small Business, LaunchCapital
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