As part of the Military Park program of Monday night tech talks, Kevin Chu, loan program coordinator at the Greater Newark Enterprises Corporation (GNEC), and Chike Uzoka, the GNEC’s technology business support initiative program manager, fielded questions about “How to Start a Startup and How to Raise Funding” on Sept. 12.
The questions were prepared by Katie Shepard, program coordinator for the Military Park Partnership, and the discussion was monitored by Isaiah Little, captain of Code for Newark. Between 30 and 40 participants were present.
Shepard explained that the “Tech Talks in the Park” series is designed to bring together students, business people and professionals in the heart of Newark's downtown business district. The talks provide plenty of time for professionals to network in a congenial atmosphere. Indeed, following the talk, there were lots of networking during the pleasant late-summer evening.
GNEC helps entrepreneurs to launch startups and established businesses to expand. The organization works with low- and moderate-income people and with businesses that are mostly minority- and women-owned. Entrepreneurs are provided with technical assistance and one-on-one counseling.
In addition, GNEC offers a 10-week program for entrepreneurs that covers topics such as marketing, developing a business plan, budgeting, and cash flow. Social media and other subjects are covered in separate workshops.
The audience asked Uzoka about his own startups. He responded that his startup, Real People Motors, is a website that turned into a dealership. And he has a consulting firm, Valentine Global, which offers programs, classes and virtual learning for entrepreneurs, and works with bigger businesses as well. Valentine Global also helps children start comic book companies and write e-books. Finally, Uzoka has a real estate business that features an online software component to help investors and developers.
When Little asked, “How is a startup evaluated?” Chu explained that he challenges startups with questions like: “Does the startup have enough funding? Does the startup have a solid business plan? Does the startup have traction? Who's on your team?” As far as equity goes, “Are your friends and family in?”
Then Little posed the question, “How do you launch a startup right away?” Uzoka responded that you have to know what you are going to do; and he noted that he’s constantly coming up with new ideas, but finds it difficult to evaluate them. Nevertheless, he emphasized that an entrepreneur must select an idea that’s appropriate, realistic and profitable. And he suggested using SWOT (strengths, weaknesses, opportunities, threats) analysis or a Business Model Canvas approach when evaluating the potential of a business idea.
The Business Model Canvas is a strategic-management and lean-startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firm's or product's value proposition, infrastructure, customers and finances. It helps firms in align their activities by illustrating potential trade-offs.
Uzoka also emphasized the importance of spending resources on things that make money. A landing page makes money. Business cards do not, he said. He strongly suggested that entrepreneurs be around other entrepreneurs for support and ideas. And he said that dedication is important. He pointed out that most people go into their business to have more free time, but, in reality, a small business owner winds up working very hard and having much less free time.
Uzoka promoted mentorship, noting that there are Small Business Development Centers tied to all the colleges, and that they offer help to entrepreneurs. Chu added that mentors are available through Rising Tide Capital and the Institute for Entrepreneurial Leadership.
Chu pointed out that a startup has to show what funding it has when it’s asking for more money or for just for enough money to get started. A startup has to show traction. If a founder is making an app, he or she needs enough money to start and finish the app. The worst-case scenario is to start and then to need more money to finish.
Uzoka then went into this in depth. He asked, “How many people have an idea for an app?” About one third of the participants raised their hands. He then explained that startups can go through three to five developers. He said most people do not like their developers, but use them out of necessity. Finding a good developer is hard. For that reason, startups should double the expected time to develop an app.
A participant asked, “Why don't you hire someone to write specifications, then hire another person to do the design, and then hire another person to program, like they do in big companies?”
Uzoka answered, “Because we aren't big companies with huge budgets.”
He then explained that, when he developed a website, he sat down with a pen and paper and drew it. He knew what he wanted. Once he had a mockup, he went to a developer.
Little advised to the participants to first see if there is any software out there that already does what they want to do. There probably is. This is a scenario that has happened to him many times. His group has often spent months on a project, only to find out that there was a similar platform already out there. He told the participants, “There are few new ideas. But, there is lots of room to improve!”
Chu added that a startup should make sure to ask for enough money to go to the next stage. If not, the startup will be coming back and asking for more money to continue functioning at the same stage, which is not a good scenario. Chu explained that a startup must plan its stages, so as to know how much money it will need. Uzoka added that if a business has an exit strategy, then the owner will know how much money each stage will need.
A participant asked, “How do you get funding for round two if you haven't finished paying for round one yet?” Chu answered that the second-round financial investment will usually take care of the first-round debt and take the lead position.
Uzoka then outlined different kinds of funding — crowdfunding, angel and venture capitalist — along with their requirements, advantages and disadvantages. He cautioned that a startup should crowdfund only if it has already reached 50 percent of its goal. People like to help those who are doing well. If the startup has already achieved 50 percent, “you'll look good and people will help you finish.”
Chu highlighted the three C's of funding: credit, collateral and capacity. Your personal credit score should be at least 650 to 680. Collateral is usually your home. Lenders want something in case you default. “Capacity” means that lenders want to see cash flow, so they know that you can repay them.
He then said that an entrepreneur seeking a loan should get a copy of his or her credit report and “clean it up!” He mentioned www.CreditKarma.com as a free resource for getting a copy, and said that it will be accurate within plus or minus 25 points.