Sunday, October 27, 2013

Checking Out VEDC Access to Capital San Francisco 2013

The VEDC Access to Capital Business Expo in San Francisco has become one of my perennial favorite conferences.  I had to attend and check out innovations in raising capital for small businesses.  The Hyatt Regency San Francisco never disappoints with hospitality.  VEDC renamed the conference this year as "Here's the Money!" instead of just asking where the money hides in years past.



Check out the awesome signage above.  You just can't go wrong with signs like that showing you the way to money.  I would posts signs like that around my home office but they would just get in the way of my daily moneymaking.  VEDC comes all the way up to San Francisco every year to show us the money, which is a long trek away from their usual SoCal partnerships with organizations like Golden State Certified Development Corporation.  They've been reaching out for partnerships with Mission Economic Development Agency here in town and the Nevada Microenterprise Initiative.  Where's the money?  It's here, there, and everywhere.  I noticed that the conference also coincided with an unaffiliated event, EO Alchemy 2013, at the same venue.  The entrepreneurs doing their alchemy may have had no idea that Access to Capital was just around the corner.

The introduction from VEDC announced their new venture, Aquaria Funds, specifically to operate outside Los Angeles.  I think it's great that VEDC created a vehicle that entrepreneurs can use to obtain capital in addition to other local microfinance partners.  They also offer more conventional SBA loans.

I started my morning checking out the session on startup financing.  Interstate Business Capital mentioned cash advances on purchase orders and other merchant advances but I'm pretty sure those are only options for revenue-stage companies.  No one can offer advances for purchases that haven't been made if the business is still trying to launch itself.  There just aren't accounts receivable to accelerate or accounts payable to defer at most early-stage startups.  Kiva Zip is enlisting its microlenders as evangelists for the non-profit projects they launch.  That's great for Bay Area do-gooders.  The Green2Gold guy, Bruce Blechman, mentioned CCVF's Clean Business Investment Summit and their founder's radio show on new venture money.  Bruce is a genius and his rapid-fire rundown of non-bank lending, licensing, collaborative co-ops, advance order funding, and sweat equity is like a five-minute MBA education.

I slipped in to the concurrent seminar on financing for existing businesses but it was mostly a panel of larger banks discussing their established loan programs.  Banks look at an industry's default rate in addition to a business' specifics, which will disappoint a lot of the aspiring restauranteurs and beauty parlor owners attending this conference.  It's good to know that SBA-backed financing covers a ten-year cycle for equipment instead of banks' normal five-year cycle considerations.  That was all I needed to know before going back to the last part of the early-stage financing panel.  I was pleasantly surprised to hear that Chinese entrepreneurs were successfully pushing their government to crack down on IP infringement.  I'd like to see more confirming evidence of stronger Chinese IP protection before I revise my low opinion of the rule of law in China.  In the meantime, there is such a thing as insurance against IP infringement.  It works just like other policies with premiums and deductibles.  Yeah, just don't tell the ACA exchange folks about it, or they'll force us all to buy it with another mandate.  Startups who want to protect their IP as early as possible should file a provisional patent application with the USPTO.

Strolling the expo floor meant listening to bank loan sales pitches.  My eyes doth glaze over when I hear big banks say they have a community bank culture.  Sorry, but I'm not a believer.  Only two things determine a large corporation's culture.  Number one is the CEO's personality and expressed strategic goals, because other executives will model that behavior and push their business units to meet those goals so they can get promoted to the C-suite.  Number two is the HR department's policies on hiring, firing, promotions, and performance bonuses.  Those are the hard incentives that motivate human behavior.  Any big bank that aspires to live a community bank culture would have to devolve so much autonomy to its local branches as to make its corporate structure nonviable.

I sat in the next session introducing local resource partners.  The usual cast of characters from the SBA, SCORE, SBDC, Operation HOPE, and others were on hand.  The Renaissance Entrepreneurship Center, San Francisco Community Business Resources, Pacific Community Ventures, and OBDC's Bay Area Small Business Finance were also in attendance at the expo.   I would have preferred to see the San Francisco Center for Economic Development (SFCED) in attendance but alas, it was not to be this year.  Entrepreneurs from underrepresented demographics need to check out California's Veterans Business Outreach Center.  I'll give you this panel's best quote, free of charge:  "The one time a banker won't give you an umbrella is when it's raining."  That means banks won't give you a loan if your business is losing money or the microeconomic climate for your sector has a poor outlook.

The most valuable insights I got out of that local partners panel was from the SCORE guy who previously worked with Harvard Angels and Sand Hill Angels on early stage investing.  He said records of the term sheets and signed subscription agreements that support a startup's capitalization table are a must.  Banks and angel investors will want to review those documents during their due diligence phase.  Corporate structure is the key to determining capitalization structure because it must allow for selling equity shares.  The choice of an S-corp or C-corp IMHO depends on how rapidly the business expects to scale up.

One participant at "Here's the Money!" mentioned Wells Fargo's financial support of microfinance platforms, which I presume to be Grameen America.  I've blogged before about how SIFI institutions will eventually purchase microfinance and crowdfunding platforms to broaden their product offerings.  The consolidation won't start until the SEC finalizes the regulatory structure enabling the JOBS Act.  You heard it here first.

The keynote speaker after lunch was Kevin Harrington, a TV pitch innovator who brought you Ginsu Knives on shopping channels and infomercials before he joined the Shark Tank show.  I'll share his tips on "Creating Brand Success" pretty much verbatim because they apply to lots of different business types.

Kevin like the "Three Steps and a Stumble" approach to raising capital and growing a business.  Step One is "curiosity overload."  Deep market research reveals product trends, so collect industry publications and attend trade shows.  You know what . . . that's exactly what I do.  Step Two is "hijack your habits."  Think outside the box.  Make things happen.  Don't do something the same way forever because business changes quickly.  Hey, I do that too.  Step Three is "build a brand for both the company and yourself."  Man, this guy must be reading my blog because surely he recognizes the pure unrivaled genius that is both Alfidi Capital and Yours Truly, Anthony Alfidi.

Kevin also laid out five skills for entrepreneurs.  Here they come.

- Skill One:  Create the perfect pitch.  Show healthy profits, exponential growth, acquisition opportunity, strong market, bootstrap capital from founders, uniqueness, powerful presentation using his "tease / please / seize" structure, the industry gap you fill (which I interpret as the pain points you solve), and your exit strategy.

- Skill Two:  Publish.  The business plan must have an executive summary, industry overview, competitive analysis, marketing plan, strong financials, and an exit strategy.

- Skill Three:  Productize.  Show your product's mass market, problem solving ability, uniqueness, magical transformation, celebrity endorsement, multi-functionality, credible testimonials, documentation and clinical studies, publicity, and value proposition compared to cost of goods.

- Skill Four:  Profile.  New media accelerates publicity.  Smartphones now have multimedia production capabilities equivalent to a full broadcast studio.  Shooting smartphone videos for YouTube will go a long way.

- Skill Five:  Partnerships.  Find parties with resources you need, and offer them resources they need.

Now for the "stumble" Kevin mentioned.  If you must fail, do it fast and cheap.  Make it up on the next venture.  Kevin shared videos of a lot of his very successful infomercial products and few that were disappointments.  No one remembers your disappointments if you recover and follow up with new successes.

These VEDC events are highly condensed equivalents of college seminars in finance and marketing.  So where's the money?  Well, here's the money, in my wallet.  It's yours too once you line up investors and creditors who have confidence in your business prospects.  Don't ask me for money.  Go out and find it with the local partners VEDC lined up for you.