Stages Of Building Your Empire
The readers of Gym Insight are a pretty diverse group of people; some have aspirations to gym ownership and others are already there. So let’s look at one of the sexiest ways to get business funding. This is how the tech startups go about bootstrapping up from nothing and how the process can be applied to your situation. The levels of investment and startup success that have come from the tech industry works in stages as follows:
- Seed Money from your own pocket
- Friends and Family investment from those who truly believe in you
- Early Stage Angel Investors who take huge risks and expect big returns
- Venture Capital Investors who you get big investments, consultants and other resources in return for large stakes and a promise of pay from a buyout or IPO
- Stock market IPO or private sale which means payday for everyone
Self Funding Digging Into Your Own
OK so you might never get past the friends and family round before you decide that you have enough and you are going to limit the scope of the business or it takes off by itself. If you can bootstrap your way to success on your own or with a partner, without bringing in outsiders, you are truly blessed. There are more ways to get funded or to build a business but the way that tech companies have made famous is one that could potentially provide you with investors seeking opportunities, if it could, then why not investigate?
Friends And Family
You can’t initially solicit investments outside your personal circle but you can ask the people that you do know, i.e., your friends and family. At this level you still have to prove the basic concept but if you can convince anyone it will be the people who know you best. Let’s say that your parents give you $100,000 from their retirement savings in return for half of the business.
Early Stage Investors
The next round of investment is known as the early stage or angel round. Any investor who goes for this realizes that each investment is very risky but they spread the risk over many investments hoping that one or two will strike it big. The perfect example from the tech world is how Jason Calacanis funded the private driver exchange Uber and now appears to be sitting on a giant golden nest egg.
To get the basics of what angel investors want you can watch Shark Tank the reality show where startup founders pitch investors in a highly controlled environment. The whole thing could be an act, I don’t know, but the dance that they do is the basis of what goes on in investment pitches around the World.
The investor offers an amount to invest and what percentage equity they think it should represent, based on their estimate of the value of your company. For example: Offering $100,000 for a 20% equity share means they are appointing a value of $500,000 for your little gym, nice. It also means that your parents have 50% and you have the remainder of 30% based on issuing undiluted shares.
So Mom and Dad may be pleasantly surprised to learn that their 100K is now worth 250K, very nice! Of course we’re getting into some assumptions about how the deal is structured. It is safe to say that you will need professional advice from a business attorney to make sure that you get a fair deal at this point. You are swimming in the metaphorical shark tank just by speaking with professional investors and entrepreneurs. From this point the numbers only get more outrageous as you go further up the investment scale.
Venture Capital And Getting Big Or Getting Out
Venture capital investors are similar to angel investors. They are more cautious and institutionally minded, looking for returns and an exit from the investment with five, ten even twelve times their original investment. In return you are bringing in real professionals who will take a close interest in your future. Venture capitalists like to invest millions and make billions. That is not impossible in the gym business, if rare.
The final stage in this sequence is usually either a sale to a bigger company in your industry or going public with an initial public stock offering (IPO). This may be too far off and maybe not even realistic for the owners of small gym businesses to think about. However if you develop such a great business model that you get onto the beginning of this track you may end up riding it all the way to the end. Who knows? One thing is certain; it’s going to be an exciting roller-coaster ride if you do go for it!
Calacanis, Jason. Jason Calacanis. https://angel.co/jason (accessed May 29, 2015).
Fagan, Lawrence. Crowdfunding For Gym Business Impact. March 9, 2015. https://blog.gyminsight.com/3251-crowdfunding-for-gym-business-impact/ (accessed May 30, 2015).
—. The Sensitive Business Of Selling Your Gym Business. March 2, 2015. https://blog.gyminsight.com/3195-the-sensitive-business-of-selling-your-gym-business/ (accessed May 29, 2015).
Vital, Anna. How Funding Works – Splitting The Equity Pie With Investors. May 9, 2013. http://fundersandfounders.com/how-funding-works-splitting-equity/ (accessed May 29, 2015).