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Guest posts / Investing / Startups / Venture capital

How to raise capital in Baltimore

UBS's Frank Cannon has four tips to help you raise and manage capital.

Money! (Photo by Flickr user Pictures of Money, used under a Creative Commons license)

This is a guest post by Frank Cannon of UBS.

Last month, Baltimore’s burgeoning startup scene earned a top spot in Entrepreneur’s hot U.S. startup cities’ list. With a network of top entrepreneurial resources such as Betamore, Baltimore Angels and Baltimore Corps, as well as educational institutions, it’s not hard to see why Baltimore’s startups are booming.
So, you live in Baltimore, you have a great idea and you are ready make your idea a reality. Where do you start? Before taking any tangible steps, concentrate on the capital with these three questions:

  1. How much will you need?
  2. Where will you get it?
  3. How will you attract your potential investors?
1. Be realistic about the capital you need

It’s important for your startup to be driven by a mission, but it’s essential for it to be properly capitalized. One of the biggest and common mistakes I’ve seen startups make is not having the realistic level of capital needed. Do your homework to make an educated estimate by building out a financial projection and a business plan for your startup.
The financial projection should include 50 percent more money than you originally think you need and it should cover a period (3-5 years) longer than you expect you would need. Funding your company’s growth can be expensive and if it’s successful, your costs can increase exponentially.

2. Talk the investor talk

Investors are critical to securing capital. Think from their perspective. The successful entrepreneurs should start with this question: Can we start this venture in a garage to spend the least amount of money?
Whether or not you in fact start out in a garage or basement, having that mentality is not only prudent but can also be attractive to investors because they want to make sure you have a handle on expenses and will conserve the capital you raise for the business. Investors want to know how much money you are personally investing in the venture. They will want to know whether you are drawing salaries from raised funds to cover your personal expenses or using your own accumulated savings. The greater a financial stake you have in the venture, the more confident an investor will be in investing alongside.

3. Follow the flow

Once the cash begins to flow in and out, it must be managed. It is particularly important to know where you money is coming from and where it is going. Track your spending and plan for every cost — no matter how big or small.
At the initial stages, your capital needs include your business and your personal finances. You should anticipate your business taking off and you should plan on alternative sources of funding including banks, home equity loans or even selling a piece of the business. Keep in mind that building a solid financial plan means estimating not just money, but also time. Take into account the time needed to successfully run your business.

4. Get the team together

Coworking tech labs cater to the needs of startups and can be big money savers; they provide ideas and experience shared by other entrepreneurs to help you avoid pitfalls they have experienced.
Further, trusted advisors such as accountants, financial advisor and attorneys can provide a wealth of combined knowledge for a startup. They will help you answers some of the most important questions you’d likely never ask yourself:

  • Should you engage in estate tax planning because the sale of your successful startup is likely to generate amount you’ll need to plan for — from an income tax perspective and also an estate planning perspective?
  • What are the tax implications of the state you live in? Changing your venue prior to selling your business or conducting an initial public offering (IPO) could help you avoid major taxes.
  • How do I access my money after an IPO? What are your options as a corporate insider? At the time of the IPO, there will be a lockup on your shares. A 10b5-1 plan is a pre-authored, SEC-registered plan than allows a corporate insider to sell shares at certain windows ahead of time to help avoid accusations of insider trading. This is a clean way to diversify from your originally concentrated holdings.

Remember, planning for and securing the essential amount of capital needed to launch your venture from startup to IPO is the single most important thing you can do. And if you’re ready to launch your startup, consider submitting your idea to the UBS Future of Finance Challenge. UBS is looking for entrepreneurs and startups to submit innovative ideas and disruption technologies poised to transform the banking industry.
With a top prize of $50,000, winners will share over $300,000 in prizes and support. UBS will offer finalists over 300 hours of coaching and mentoring and the opportunity to test and develop their ideas and technologies with help from UBS’s global panel of experts and partners in one of our innovation centers.

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