Louisa Schibli and Janice Shade are co-founders of Milk Money, a low-profit limited liability company that supports local investment, entrepreneurship, and small business through its local investment platform, educational and networking resources, and service for investors and entrepreneurs.
Janice Shade spent an hour talking to our content and communications specialist Heidi White about what it takes to be an entrepreneur in Vermont. The following is part two of a two part transcript of their conversation. In part one, Janice provided some insight into what it takes to be an entrepreneur and offered some advice and caution. In this second part, she digs into the topic of financing and offers some helpful resources for new business owners.
HW: What do entrepreneurs need to know about organizing and financing their start-up?
JS: Right up front, one of the first things you need to determine is how you will organize your business. Will it be an LLC? A corporation? And if a corporation, an S Corp or C Corp? The organizational model you choose will determine how you will be taxed, how much protection you have, and also what kinds of securities you can offer to investors, so it’s important to figure this out as early as possible.
In terms of financing, bootstrap it as long as you can WITHOUT using your credit card. I mentioned before (see part one) that I used credit cards to finance inventory in the early days of TrueBody. Then five years later, when I realized the company wasn’t going to make it and had to shut it down, I was stuck with all this credit card debt and the best alternative was to declare personal bankruptcy. I wish someone had told me back then what I’m saying to you now but those were the days before the Great Recession and I had an American Express card with a $23,000 dollar credit limit so it seemed like an easy way to get “short-term” financing. Unfortunately it turned into long-term financing.
When you’re ready for outside financing, think longer-term about where you want to go with your business. Do you want to grow it over the next 10-15 years and then hand it off to your kids or maybe sell it to your employees? Or do you want to grow it quickly to a point where the company could be acquired by a bigger company in three to five years? Do some strategic thinking about what’s next. The type of financing you choose could play a big role in your “exit strategy.” For example, if you take investments from accredited investors or a venture capital fund, their goal is to grow a company as fast as possible to sell off for a big pay day. On the other hand, if you take on too many loans early on, you may reach a point where banks are unwilling to lend you anymore because your balance sheet is “too leveraged,” which could limit your ability to continue growing. There is no magic formula. You will have to figure out what kind of financing is right for you.
“When you’re ready for outside financing, think longer-term about where you want to go with your business.”
When I was just finishing my business plan for TrueBody Products, I thought “why can’t I just go out to a million moms and ask them for a dollar as an investment in my business?” Kickstarter hadn’t begun. I needed people to invest so that I’d have the money I needed. I figured that they would support the company because they would be invested in it. At that point, I couldn’t do it. It was illegal. But now it’s not. That’s really the idea behind Milk Money, the business I have co-founded with Louisa Schibli. The idea is that lots of small investments can be grouped together to support companies that need capital. This way, investors who may not have a lot of money but want to put their money into Vermont businesses can contribute without losing their shirt. Small amounts of money adding up can be really meaningful. I’ve found that venture capitalists and angel investors can be really impatient. Sometimes a business needs a little more runway before they can get their business going and Milk Money offers that.
Credit unions and other financial institutions can offer decent rates on business loans and business owners can also check out low-cost lending options through the Vermont Economic Development Authority (VEDA), Community Capital of Vermont, and the Vermont Community Loan Fund.
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HW: Can you point to some good resources for entrepreneurs?
JS: The financing options I listed earlier (above) are all excellent resources. A few others include:
Lender Match, through the United States Small Business Association gives you access to lenders around Vermont where you can express your need and lenders can reply to you with information about how you can access the funding you need. This reduces the time you spend filling out applications and waiting to find out you couldn’t get funding from the lender in the first place.
Capital Compass®, through the NH Community Loan Fund is a tool that will help you determine what type of options are available for funding your business. Should you seek capital or equity investments? Take on debt? To use the tool, you simply fill out a questionnaire about your business.
Launchvt was started by the Lake Champlain Regional Chamber of Commerce to help entrepreneurs find exposure and education to help launch their business. It’s a business pitch competition, so entrepreneurs can win money by pitching the strongest business idea.
Center for Women & Enterprise is starting to offer a lot of seminars and workshops on things like how to use Linkedin, how to build personal brand, how to manage your cash flow, sales, you name it.
HW: Do you have any other thoughts to add before we wrap up this interview?
Yes. I was recently talking to the head of the MBA program at UVM about the democratization of capital for entrepreneurs and investors. The Vermont Small Business Offering Exemption (VSBOE) makes entrepreneurialism and investment options available to the majority. People should be able to develop their ideas and bring them out into the marketplace without having to compromise their vision in order to please their investors. It’s exciting to be helping others move the dial on their dreams, regardless of their financial situation.
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