SMALL BUSINESS HANDBOOK.

According to the Global Entrepreneurship Monitor 2000, one out of every 10 people in the U.S. is an entrepreneur, the second highest level of activity in the world, eclipsed only by Brazil with one in eight. Compare that to one in 25 in Germany and fewer than one in 100 in Japan and its apparent that, even with the dotcom crash, many people still see promising opportunity in starting their own businesses.

Finding small Business Funding

Though the climate may be somewhat scarier than it was a year ago, entrepreneurs are by definition risk-takers. No one is throwing money at pieced-together companies driven by fragmented great ideas, but for tenacious entrepreneurs with real products and services who are willing to grow their companies, there is funding. However, for many entrepreneurs, finding funding is the hardest challenge they face because they have no experience in this area.

The Good News

Funding is still out there. Investors are still interested in well-developed and professionally-executed business plans. According to MSNBC, more than $80 billion in venture funding was invested in 2000, in contrast to $60 billion in 1999 and $20 billion in 1998. Though there was an undeniable slowdown in money flowing to start-ups in the fourth quarter of last year, the business plans looking for cash continued to flood in. The undaunted entrepreneur is alive and well. So how does this person find the necessary funding?

Formulating A Business Plan

The first step in the funding process is formulating a Business Plan, which is just that -- a plan for doing business. The good news about going through the arduous process of preparing a Business Plan is that it helps owners focus on some issues that probably haven't really been thought out. This Plan is the document that pulls the company team together and communicates the opportunities and rewards for potential investors. It integrates operations, finance, marketing and sales into one cohesive force and establishes priorities, resources and goals.

Entrepreneurs need to remember that Business Plans must be concise, yet informative and compelling -- outlining the company's ability to meet future expectations through a current focus on the fundamentals. Issues that owners should consider include:

* Business niche and maximizing advantage in that niche

* Calculation of market composition and size

* Identification of custom

* Finding a real need rather than trying to create one

* Pinpointing the unique selling point of product/service

* Approaching business from the customer's point of view

* Finding out what works and what doesn't (and learning from both)

* Making decisions on funding required -- asking for more than originally thought necessary and being prepared to wait longer to get it

* Building a strong team with related experience and credentials

* Dreaming big but being conservative in projections and tightfisted with spending

Attracting Investors

Besides a definitive business plan, investors like to see a real product or service, preferably something people can't live without. The product should at least be in the working prototype stage and any service should have been tried out with paying customers.

Investors take note when the owners believe in the project enough to forego a large salary for equity or put some of their own money into realizing the potential of their businesses. This is a good sign that there is a real commitment and a focus on profitability. Of course, if the entrepreneur is fresh out of college, this may not be possible. Investors are also impressed when owners have been able to raise funds creatively. Some entrepreneurs have pre-sold orders for their goods to raise the money to make them.

Putting together the right team is another powerful tool for winning over investors. This team needs to combine not just visionary skills but hard-nosed operational and numbers acumen with experience in growing a business.

Finding the Right Investor

Start-ups are in a prime place for finding investors. One in every 15 U.S. adults has invested in one or more new businesses. This is the highest ratio on the planet. The critical issue is finding the right investor. Most people start a business with their personal savings (72%), then rely on friends and relatives (28%). Banks finance 45% of start-ups, individual investors 10%, government-guaranteed loans 7% and Venture Capital firms 1%.

Small businesses usually need more than money; they need an investor who can provide support and expertise. Venture Capitalists can offer the bucks and other critical elements. They usually specialize in a particular industry and have expertise that can prove invaluable. VCs tend to look after their own interests, are often very controlling and are relentless in their due diligence. Venture Capitalists may vary from coast to coast. West Coast VCs are apt to move more quickly than East Coast, but they all expect focused business plans and presentations.

Angels investors, typically individuals or small firms, usually take a less formal approach and are often drawn to a company by its dynamics, though they will still do their homework. Angels have become a lot more prevalent since the dotcom crash, now that VCs are shying away from Internet-and Web-related investments. Angels may not have the astounding sums of VCs (usually under $100,000) but they have a real personal interest and often act as mentors. An angel may not be right for a company that needs a specialized investor who knows a particular industry, unless fortune smiles and delivers an angel with the right background, expertise in a field where he eamed his money.

Established companies are also a resource, since they are seeing the value of entrepreneurial ideas. Many are forming venture groups or investment departments to invest from a strategic standpoint Their final objectives vary but what they bring to the marketplace is more money, name brands and years of experience.

Out of the Midwest, a concept known as microlending is being put to work to fund very small businesses. Accion USA is the largest lender in this special field but is being joined by banks, like Iowa's Bankers Trust, which are establishing microlending programs of their own.

The search for investors should focus on those located in the same geographical area with expertise in a related field. Using Internet online directories like ACE-Net for angels and Vfinance.com for venture capitalists can quickly narrow this search. Some directories are free while others like NVCA charge. Most Venture Capital firms have websites so entrepreneurs can find out exactly how best to contact them, what these VCs expect and the types of projects they've funded before.

For entrepreneurs wanting to review the backgrounds of anonymous angel investors for free, there's the Venture Capital Resource Library.

America's Business Funding Directory provides over 13,000 funding sources. The National Venture Capital Association has a free online membership list, often with contact information. Private and public financing resources can be found at EntrepreNet through the non-profit Enterprise Corporation of Pittsburg. At InvestinVision.com, an online, investor-targeted directory, entrepreneurs needing funding may list their businesses for free for two months.

Many enterprise forums are offered through local university business schools and signing up for these mailing lists will provide invaluable information about what's going on in the community. More often than not, investors are found through personal contacts so attending small business fairs, association meetings and chamber breakfasts will increase the likelihood of finding a potential investor. The site for American Entrepreneurs for Economic Growth provides event listings.

Making a Deal

It should be obvious by now that there is a lot of ground to cover between having a great idea and securing the financing to realize its full potential. The trip is made smoother and quicker with a provocative business plan outlining money-making potential, extensive research, and understanding of the marketplace, an ability to see and seize an opportunity, personal contacts, and a little luck.

Being bold for the entrepreneur must extend from the idea stage through building, funding and beyond. According to the Kauffman Center for Entrepreneurial Leadership, entrepreneurs have led the way in developing ideas. They are responsible for more than one half of all innovations -- 67% of inventions and 95% of radical inventions since World War II. Finding funding is essential to realizing the full potential of any endeavor. It's out there and resourceful entrepreneurs are finding it.

Michael Chon is founder and president of Investin-Vision, an online, investor-targeted directory for entrepreneurs needing funding, and Omnis Network, a hosting and domain name registration company for small businesses, both based in Torrance, CA.