Computers, genetic engineering and medical technology are familiar examples.

Most readers of this book will be interested in starting or expanding small- or medium-sized service, retail, wholesale or low technology manufacturing businesses. Large-scale venture capitalists traditionally do not invest in these areas. Fortunately, relatives, friends, business acquaintances and local businesspeople with a little money to invest can all be pint-sized venture capitalists. Many do very well at it.

Example: Jack Boots loved to ride dirt motor bikes on the weekends. He was frustrated that no retailer in his county carried either a good selection of off-road bikes or the right accessories. He and his friends sometimes had to drive 200 miles to buy supplies.

Eventually, it occurred to Jack to quit his job and open a local motorcycle store. He talked to several manufacturers and was encouraged. The only problem was, he would need $50,000 to swing it. As he only had $20,000, he was about to give up the idea when some of his biker buddies offered to help raise the cash. Jack found six people willing to invest $5,000 each in a limited partnership. Each of these friends was, in reality, a small-scale venture capitalist, betting a portion of his savings on the notion that Jack would succeed and they would participate in his financial success.

Jacks Cycles opened for business and is doing well. All the limited partners were paid back their initial investments plus the agreed-upon return set out in their limited partnership agreement, and Jack is now the sole owner. The only sad part of it is that Jack is too busy to ride much anymore.

Many cities have venture capital clubs, comprised of groups of individual investors interested in helping businesses start and grow. These clubs often serve as an introductory service-you receive a few minutes to discuss your business at a club meeting. If any investors want to pursue the discussion further, they make an appointment with you privately. You can use these groups to expand the list you are making of investment prospects. You may also be able to obtain computerized lists of venture capitalists and investor magazines in which you can advertise your proposition. Often, these clubs are formed and disbanded rapidly; ask the local Chamber of Commerce or your local bankers if there is an active club in your area.

When thinking about raising money by selling a share in your business, its important that you have a hard-headed picture of what youre getting into. Amateur venture capitalists or equity investors gamble on your idea for your expansion or new venture. They invest money hoping that youll make them rich, or at least richer. If you intend to look for equity investors, your business plan needs enough economic and marketing research to show investors that your idea has the potential of making a substantial profit. Youll also need to show potential investors exactly how theyll profit by investing in your business.

Example:Jack Boots spelled out his profit distribution plans in his limited partnership document: Investors received 50% of the profits paid monthly according to their relative share of investment after he paid himself a nominal, agreed-upon salary for running the store. In addition, they qualified to buy merchandise at a substantial discount. They also owned a share of the assets of the business. Jack estimated that a $10,000 investor would receive a monthly cash flow of $200 for an annual return of 24%. When added to the partners investment share in the inventory of the shop, this would make a $10,000 investment worth $20,000 in three years.

D. Additional Money Sources for an Existing Business

If youve been in business for at least three or four years and can show a history of profitable operations, a whole new world of financing options opens up to you. The major advantage you have over a start-up is that you can prove what you say, whereas a start-up cant. Be careful if youve been in business for less than three years or cant show a profitable history-financing sources may consider you a start-up and put you in a higher risk category. (Funding sources for start-ups are covered in Section C, above.)