Early Stage Finance

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Comment by Richard Godwin on December 10, 2009 at 10:31pm

You need to talk to John Powell
http://www.apogeespacebooks.com/Books/Floating.html

Comment by Val Stavrev on December 8, 2009 at 2:50am

Thanks everyone for useful discussion.

Let consider a particular case.
I am designer and manufacturer of balloons inflatable structures since 1992. During the years I developed technology of making and testing large balloons within minimum area workshop. Now, I am interested to sell hi-altitude balloons. The stratosphere often is regarded as “near space “[ http://www.nsf.gov/attachments/112487/public/NASA-NSF_Joint_Balloon_Programs_Jon_Morse.pdf ].

I would like to sell zero pressure and super pressure balloons to universities and small research groups, and radio hams. Such groups routinely used weather balloons. The weather balloons are relatively low price and easy to operate but have serious disadvantage: they burst after maximum altitude ascent and the most interesting phase of flight in stratosphere become very short.

The medium size high altitude balloons can fit the gap between large scientific balloons [http://www.aerostar.com/aerospace.htm] and latex weather balloons. As a educational instrument it have advantage to be similar to large scientific balloons in operational procedures.

The target market is US at fist place, obviously. I have no capacity to arrange and support contacts with target customers. Most likely no university will going to purchase balloons from totally unknown (Bulgarian) supplier. Legal problems associated with selling of such products are significant problem.

There is a product, know-how target market. What the next? I see solution in finding US based partner for this an possibly future projects, but who knows?

Comment by Jason Cheek on December 1, 2009 at 7:01pm

Jason is right. Val, if you haven't done so already define your target customer group and then call a few and get their take on your technology. You don't have to disclose how it works but just give them an idea of its benefits, features and limitations. Also ask them what pain or problem this would solve for them and how much, in monetary terms, it is worth for them. This is the primary info any investor will want to know first. Even if you are not looking for external financing you'll want to do this for yourself both to confirm your idea has marketable value and to get feedback to help improve your design.

Comment by Jason Held on December 1, 2009 at 6:38pm

Ok, fair enough about the patent comment. Was just listing. Perhaps the answer to Val's question "what to do next", would be to get potential customers onboard, to demonstrate the need. Especially if its a larger project needing external funding. Would you agree with that?

And I'll have to be careful about mentioning my mother from now on :)

Comment by Jim Davidson on November 29, 2009 at 11:16pm

Send details, Jason. Can't expect to sell anything without properly describing the merchandise. lol

Well documented might even be a disadvantage, depending on what you plan to do with the intellectual property aspects. Patents in space businesses have been denied for national security reasons. Patents by Goddard were duplicated by von Braun. It is sometimes better to keep secrets. Trade secrets often work better as a long term strategy for keeping your innovations as your property. Of course, every situation is different.

What Jason writes about something that can be brought to market promptly for revenues and cash flow, is good. It need not be small. It does have to meet an existing need.

Comment by Jason Held on November 29, 2009 at 1:47am

My Mother retails for about $3.25

Just kidding :)

Seriously though Val, it's hard to answer your question without knowing more. There are many possible approaches. Also, "well documented" means different things to different people (business plan? scientific papers? Patents?).

Either way, recommend you pick one small thing that you can *most quickly* prototype and sell, to get customers and cash flow as soon as possible. That's your real seed.

Comment by Jim Davidson on November 29, 2009 at 12:03am

In finance, any stage before you have profits or a public offering might be considered early stage. A company with revenues but no profits yet is likely to be considered early stage. Such a company is also typically less than three years old. (General Motors in its current incarnation meets both elements of this definition.)

Typically, early stage does not mean vapor ware. It is not necessarily initial or seed capital, though that is certainly a very early stage.

Seed capital typically comes from the entrepreneur, other principal members of the company, friends, and family. It may also come from an angel investor or a business incubator. It rarely comes from vulture capitalists.

Venture or vulture capitalists want in, not at the first stage, but at the next stage (aka early stage), when the company is most vulnerable to exploitation and all the meaningful risk of coming up with a new idea and getting it ready for capitalisation has been taken by someone else.

Vulture capitalists typically want lots of control for their early stage financing, without providing adequate capital to meet the actual needs of the new company. They'll appoint a chief financial officer of their own preference, someone who is not interested in anyone else's interests. They'll "give a haircut" to your need for capital, and demand a lot more performance than their contract requires.

As an entrepreneur, you should be prepared to be screwed hard whenever you deal with anyone claiming to be a venture capitalist. These people want to hit "home runs" meaning 400% return on investment or better. They often strike out, meaning a total loss of the investment. A well managed venture fund can sometimes average better than 40% on their investments - God willing and the creek don't rise. Puffery to the contrary notwithstanding, many venture capital firms in new industries are utter failures. Established venture capital firms in mature industries (e.g., software, online gaming) are composed of spectacular bastards who would sell their own mothers for the right price.

Business incubators, angel investors, and entities established for some purpose may be more suited to the very nascent space industries, especially those like space tourism and passenger space transportation which face enormous government barriers to operation.

Comment by Val Stavrev on November 24, 2009 at 12:45pm

After we have idea what is the “Early Stage” the next question might be “if we already have a well documented idea, what we should do next”?

Comment by Jason Held on November 24, 2009 at 9:17am

actually, this may spell things out better, although actual amounts will vary:

http://www.1000ventures.com/venture_financing/venture_funding_stages.html

Comment by Jason Held on November 24, 2009 at 9:11am

I would consider "early stage" to be a step above "seed stage". i.e., you have some IP developed. Something more than plans and proposals-- actual code or early prototype. Might even have some basic cash flow.

correction.....what do you guys think of this primer?
http://www.foley.com/files/tbl_s31Publications/FileUpload137/581/primer_early.pdf

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