Finding Start-Up Capital 3

[SeanDotson]

I've read countless articles and book on funding your first venture: From angles to VCs to the SBA... from friends and family to a second (or third) mortgage.

What I want to know is how you got started. And any tips (related to getting the money to start) you would give someone (or a group of engineers) considering the same.


Sean Dotson, PE
Autodesk Inventor Certified Expert

http://www.sdotson.com

Autodesk Inventor Tutorials & More

 

[zdas04]

To start a one-person business out of my home-office, I got a loan from my 401K (U.S. company-matched retirement savings). The interest rate I'm paying myself is on a par with the rest of the account's investments and I believe that I am a pretty sound investment (probably a skewed perception).

The only downside I saw to this option is the max loan limit left me a little skinny on reserve. Luckily I got a big retainer pretty early on and fully-funded the reserve without having to find additional capital.

David Simpson, PE
MuleShoe Engineering

http://www.muleshoe-eng.com

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips Fora.

The Plural of "anecdote" is not "data"

 

[MacGyverS2000]

I found the SBA to be full of a lot of useful information, but unfortunately has come up a bit short on the funding side of things. They WERE able to help me quickly secure a $10k line of credit, but in the grand scheme of things that doesn't help a whole lot. I wanted all of the reward, so I was willing to take all of the risk... this meant putting it all on personal credit cards.

 

[RDK]

Start small, rent rather than buy, only hire once you have the job, be careful in capital purchases and eliminate the requirement for large amounts of capital.



Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[INBCPE]

I have a cautionary tale regarding start up capital.

I started a business 3 years ago with a fellow who feared bank loans like the plague. We grew rapidly and enjoyed tremendous success in building a client base. But we were never properly capitalized or financed. We became a 3 million per year company that lived payment to payment. It was a horrible way to run a company. I finally got fed up and went out and met with 5 banks regarding loans, got some encouraging advice, and got the paperwork in order. But when I went to my partner, he said no because he was planning on buying a house in the next 6 months and didn't want his name on anything.

Well, this fellow began wearing on my nerves. He came to work less and less (while still taking the same salary as me), and fell back onto some personal demons that I had hoped he had conquered years ago. In the end, I had to get him removed from the board of his own company (with his name on the marquis), and then I had to fire him for violations of the company substance abuse policy. He will be losing his license, his wife and son (she's leaving him), his business partner, and his company (because it won't survive without me).

So I have decided to leave him. Funny, it sounds like a divorce, but it is. I found two other like-minded professionals, and after multiple meetings with several law firms to cover our butts, we open our doors in three weeks. We will start out life with four months of operating capital already in the bank, and a full schedule of work. We obtained 20% of capital from personal funds, and the rest from a combination of credit lines and loans that the bank was kind enough to suggest.

I'm young (under 40), and I've been given a gift that few people get: I had a thriving business that failed because of poor financial decisions, but I get to start over. My warning is this: do not start a company without financing. Starting out behind the eight ball is a recipe for disaster under most conditions. Banks usually look for 2 or 3 years of operations before they call you a success. There's a reason for that: you won't make it past 2 or 3 years if you don't manage the financial picture properly. So if you can't find a way to float 2 or 3 months of operations, you will end up in trouble.

And always default to the truth, even if it means telling yourself "This isn't going to work this way."