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Ask Dave

Getting A Backer

Hear Dave tell Steven why he doesn't need to even with bother getting a financial backer to put forth some venture capital for him.

QUESTION: Steven is starting a small business and is looking for a financial backer. He’s wondering if there is an industry standard for splitting the profits. No, but that doesn’t mean this is a good idea, says Dave.

ANSWER: Most of the time, if you get venture capitalists involved in starting your firm, they will usually take about 80 percent of your ownership. To just attract a person to put money into your business, there is no rule of thumb. It’s just whatever you can talk them into. I would advise against you doing that, though. You’re going to get yourself into all kinds of problems if you do it like this. Start your T-shirt business small. Go make some sales and ask your customers to put up some deposits, and with those deposits you go get the T-shirts made for them and make a profit. Do that 200 times and you’ll have a pile of money to do this by yourself.

Don’t bring in a backer; it will be a mistake. You don’t need a backer, you just need a customer who puts down a deposit for their order that is the equivalent of your hard cost. You don’t need any money to do that. Let the customer order what they want. You’re going to lose your butt because you’ll have a warehouse full of T-shirts that no one wants.