Patrick offers insights on funding options for entrepreneurs
By Tom Ballard, Director of Innovation and Entrepreneurial Initiatives, Pershing Yoakley & Associates, P.C.
Jonathan Patrick of the UT Federal Credit Union (UTFCU) offered some sage advice to a room full of entrepreneurs during last week’s “First Friday Fanfare” hosted by the Knoxville Entrepreneur Center.
“You are always pitching investors whether you need money at the time or not,” UTFCU’s Senior Vice President and Chief Lending Officer reminded the group. As such, entrepreneurs need to be mindful of the interests, investment history, and priorities of those with whom they are interacting.
At the same time, he advised against taking money from anyone.
During a lively and animated interactive presentation, Patrick discussed the various funding options that entrepreneurs should consider, starting with the three Fs – friends, family and either fools or founders.
He categorized the more traditional sources into two groups – sources that fund what you plan to do and those that fund based on what you have done. The three Fs and angel capital fall into the first category, while venture capital and lenders fall into the second grouping.
UTFCU’s “Line 12 Micro Fund,” previously profiled in this teknovation.biz article, falls in the middle between the three Fs and angels. The program, launched about a year ago, is intended to help entrepreneurs with a good idea secure the $5,000, $10,000 or $15,000 they need to get started.
“It’s not one and done,” Patrick said of the program that many thought was a one-time opportunity. “It’s open. Go to line12fund.com.”
Many of the funding sources that Patrick cited are those that seasoned entrepreneurs fully understand. They include Small Business Innovation Research (SBIR) grants, pitch competitions, and angel and venture capital.
Others are newer such as crowdfunding.
“It takes a lot of creativity to stand out,” Patrick said of the crowdfunding opportunities like those provided by Kickstarter. He also noted that crowdfunding campaigns might help a start-up secure immediate cash, but they pose challenges later on if the entrepreneur is going after angel or venture monies.
“You have to use part of the next round of funding (from an angel or VC) to meet commitments made to crowdfunding investors,” Patrick noted.
Other, less well-known financing options include strategic partnerships, pre-sales to customers, and selling of accounts receivable.
Finally, as a serial entrepreneur, Patrick offered some personal lessons he’s learned over the years.
“It’s dangerous being the first mouse,” he told the group. “It’s the second mouse that gets the cheese.”
Patrick’s analogy was a reference to the need to decide whether it is best to be on the early, bleeding edge by launching as soon as possible, or wait for someone else to go first with a similar idea.
“That was my experience with GoGrabLunch.com, my first start-up,” Patrick said. “I went first, and someone followed with a competing app that scaled faster.”