Enterprising Women Vol 10, No 2, 2009

38 enterprising Women Cover Story T he economy has slowed to a snail’s pace, customer demand has fallen off, bank lending has declined, and the private equity markets are shut- ting down. Not only do you need money to grow your business, you need it for cash flow. What can you do to keep the momentum moving for- ward or even just keep your business alive? Earlier this year, Springboard Enterprises (www.springboardenter prises.org) and Foley and Lardner LLP (www.foley. com/) convened a group consisting of two savvy businesswomen and their counsel to provide advice about tried and true financing options for entrepreneurs. We have provided a summary of their comments for you. As always, if you are con- sidering using one or more of these options, we would urge you to consult with your attorney about your company’s particular situation before proceeding. Sustaining Your Business 1 2 3 4 While Waiting for Financing M ost of the businesses I work with and the companies I’ve founded have raised money from private individuals (known as angels) and venture investors. It’s very tough to find investors and equally as tough to run your business while trying to raise capital and close the deal. What can you do while you wait for the deal to close? What if you don’t have time to wait? What are the tools in the business tool chest? You may not be using them to their fullest or at all. The lesson here is leave no stone unturned and try to do all of this in parallel . There are many ways to leverage the equity you do have to give you a longer runway. Warrants • Warrants are options, non-employee options. You use them in lieu of cash you’d pay out to vendors when you purchase equipment, tools, manufacturing, even legal counsel and accounting services. For instance, let’s assume you get a bid in from a vendor. Instead of paying the vendor totally in cash, you offer to pay in warrants, as well. That helps your cash flow and, if the vendor is one you value, offers the vendor an opportunity to invest in your company and share in its future profitability. Warrants could be a win-win option. Cautionary Note: When calculating the pre-investment Cap Table, warrants must be included as if they were fully diluted. PR • You may be able to negotiate sub- stantial reductions on vendors’ costs with a creative joint marketing strategy. Many ven- dors have “hot startup” programs. These are programs that target relationships with start- ups that are considered strategic to a ven- dor’s long-term goals. I have negotiated an 80 percent to 90 percent reduction in the costs of vendor tools in exchange for a PR program that included press releases, tech- nical white papers with reference to the tools, Web links, etc. Cautionary Note: You will need to con- vince the vendor that you are the hot startup in their strategic area. It is also critical that this strategy be rolled out with both the engi- neering and marketing arms of the company in lock step. The marketing arm of the com- pany needs to sign off on all of the PR plans before they are committed. It is best to strat- egize and come up with acceptable PR plan elements prior to suggesting this strategy to the vendor. Team • Consider going back to your team and offering them options or equity if it looks like you may have to cut salaries or positions. I have seen situations where the CEO works with the team so that the com- pany didn’t have to lay anyone off. Instead, it offered equity in the company for those who agreed to a 10 percent salary cut. This kept the team together and preserved pre- cious cash. Cautionary Note: Some employees may decide they can’t afford the salary cut even with other incentives, and you could lose them. Distributors or Manufact- urers • Your distributors or manufacturers are a great source of potential investment, especially if you are in the midst of negotiat- ing a funding round. Invite them to join in the round. Their involvement gives a major con- fidence boost to institutional investors and may help you close the round faster. They also may be interested in convertible prom- issory notes. Cautionary Note: Some distributors may insist on an exclusive arrangement, but be careful that it doesn’t conflict with your long- Dawn FITZGERALD