Ep. 89: Mai Luu - Alternatives to Venture Capital for Small Businesses

Contact Mai Luu:
https://www.linkedin.com/in/mai-luu-693596168/


"Small Business Planning During COVID-19":
https://www.imanet.org/insights-and-trends/risk-management/small-business-planning-during-covid19


FULL EPISODE TRANSCRIPTMitch:
(00:05)
 Thanks for coming back for another episode of Count Me In
this is your host Mitch Roshong, and I'm here to bring you
episode 89 of our series. We all know small to medium sized
enterprises are a huge part of our management accounting
profession, and COVID-19 has greatly affected the way these
businesses are run along with the economy as a whole. In this
episode, my cohost Adam talks with Mai Luu. Chief Operating
Officer at Commonwealth Capital, LLC. She has also funded
businesses and is very familiar with the small to medium sized
business landscape. While talking with Adam, Mai discusses 
various cashflow activities, venture capital funding, and other
ways these businesses can obtain funding to renew themselves
while still staying true to their original business purpose. Keep
listening as we head over to their conversation now.

Adam: (00:58)
Small- medium sized enterprises have been affected greatly by
COVID-19. How can businesses find a way to renew themselves and
become new all over again?

Mai: (01:09)
COVID-19 has a far reaching economic impact in so many areas.
Most every industry in every state has experienced the impact of
COVID-19.  Second quarter GDP job, 9.5%. To put it in
perspective, since record keeping began in 1947, quarterly job
has never been more than 3%. With so much spending, making up two
thirds of the US economy declines 12% percent between April and
June, 2020. National debt and monetary policy for coronavirus
stimulus packages are added to the national debt. With the Fed
loaning money and buying financial assets,  1.41 million
daily, the money supply, and two has recent sharply despite the
injection of money into the system. Inflation stays close to
zero, which could be a signal of a looming deflation in a near
future. Disrupted supply chains and shortage of products,
especially PPE products. Employment has been heavily affected.
Job losses were worse than in the Great d\Depression, 50 million
people out of a job. As many businesses closed, permanently and
restrictions continue in several parts of the country. How
business reinvent themselves in the wake of COVID-19 requires
serious reevaluation of their business models, product and
service offerings and financing methods to adapt and thrive in
the new normal. Some of the old way of doing business are no
longer effective and some products and services are no longer
relevant. So understanding the renewed needs for both customers
and service providers should play the central role in researching
for the new business models, strategies, and product and
services. While the pandemic reveals business weaknesses, it also
presents opportunities for resetting strategy and business
residents. With working from home businesses, adapt and embrace
flexibility. So work life balance becomes work life integration,
automation, core self-service portals, virtual help desk, and the
use of productivity tools increase efficiency and adaptation. So
this set of changes in our lifestyle transform how we consume
products and services and how business operates. One thing that I
can think of is cashflow and liquidity. This is one of the most
important areas of business continuity. I can think of a few
basic principles in managing cash that include one, reduce cost
as much as possible and seek alternative financing, including the
use of government support policies and working with landlord
vendors and suppliers for favorable payment terms. Two, focus on
generating cash, also turning a profit. Three, be transparent and
fair to employees and share resources in case you end up having
to cut staff.

Adam: (04:48)
I think you gave some great advice as people are looking to start
new, and one thing I didn't hear you mentioned was something like
venture capital. what are some of the considerations that SMEs
should look at when seeking venture capital funding if they are
trying to use that as starting new

Mai: (05:05)
A traditional venture capital VC business model is built based on
hitting a few home runs to make up for many losing backs. Due to
the high-risk nature of startup and early stage companies, VCs
are extremely selective, only 0.1% of new ventures receive
venture capital in any stage that leaps 99 point 99% of startups
not receiving VC funding.  Ofthose that seek VC funding only
1.5% receives it. Even at this level of selectiveness, the
majority of VC investments have  attractive returns. VCs
prefer to fund high potential disruptive ventures in emerging
industries that can offer high returns in a short period of with
attractive exit options, acquisition or IPO. So those firms are
known as unicorns. Businesses that can benefit from venture
capital are disrupted capital intensive high growth ventures in
emerging industries, host competitors are also getting venture
capital funding. So when you're working with VCs, you need
research to find the right VC fund. Some VC funds have
restrictions that affect the investment choices. Some VC funds
are geographical based or industry based or impact investing,
etcetera. With that in mind when seeking venture capital you
should first five venture capital funds that invest in companies
like yours. Two,ensure that the VC firms invest in the stage of
funding, that you are seeking. TThree, check out the VC firms
past deals, and four consider location of the VC firm. I can
think of as a few other considerations when seeking venture
capital. One VC may seek control at the startup by taking a large
portion of the equity, selling out common equity in the early
stages of the company's existence, generally result in selling
out the company's most precious element, which is the common
equity ownership. This is a critical mistake made by a lot of
entrepreneurs. Two VCs. also set the tone of the deal to make
sure that they get multiples of the investment before anyone
else, so entrepreneurs usually come last.. Thirdly, VC might
replace startup to-dos with higher manager that could lead to the
loss of the entrepreneurs, original vision and passion. Lastly,
with your VC investors, sitting on the board and closely
overseeing the company strategy and operations, your dream might
become another job.

Adam: (08:10)
So in a lot of ways, venture capital is a really good investment,
and if you're that unicorn that gets that, that gets that
funding, it can be really important for you, but then these
considerations that you just mentioned, it may not be, it may not
always be the best option. Are there any alternatives?

Mai: (08:26)
Correct. Yes. Fortunately entrepreneurs can seek capital for
their startup and early stage company without relying solely on
the mercy of institutional money. So for the, for the
entrepreneurs who understand the private capital markets, they
can raise a substantial, substantial amount of capital through
something called exempt securities offering without having to
give up too much of their equity at the early stage for too
little money. Keeping the vast majority of equity ownership and
voting control that an entrepreneur can stay the course of their
original vision and passion. The JOBS Act of 2012, brought the
single most significant change to the securities law since 1933.
The JOBS act lowers the barriers in the several area of the
securities law permitting smart business to raise capital
directly from the general public. So basically they are legally
b...