The Financial Stakeholders deciding new business, money, fame and your future. Do you know how to speak to your gate keeper?

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Do you know how to talk in a way that turns the light bulb on?

Do you have patience to read about how to successfully capitalize your startup? Let’s see how far you get in this article. Start ups have taken on an entirely different dynamic. The adage of create profit with sweat equity seems to be a lost concept. Technology innovation, market share, and aggressive venture capital created revenue driven markets. These markets promote growth at all costs. Deep pockets fill the gap between negative bottom lines and revenue growth. Typically technology startups begin with credible professionals who seek opportunity. Often competent professionals discover design opportunities working in inefficient companies. During a career it is natural to seek your next challenge. Locating the challenge may be the simple part of your career.

Let me explain.

Often liquidity providers are not plugged in to technology investments. An institutional bank’s business is not engineering. Bankers are not information technology experts. Financial arms do not create policy to improve hosting infrastructure or data encryption. Banks are stakeholders and financial partners. Most financial entities are stakeholders. Nearly all wealthy people are stakeholders. None of these people are your partners. None of these people speak your language. None of these people look at an application the way you do

It is important to assess stakeholders. Approach each in a manner they understand. Use the words they know not the ones you teach them.

Often clients will advise me of alternatives they have. These alternatives often have the word “Hedge Fund”, “Private Investment Group”, “Trade Platform” or “Bank”. Every so often I hear the word “Joint Venture” or “Partner”. At times these alternatives feature certain syndicates that appear credible.

The most important factor (non product related) to consider for any new tech startup is comprehension of financial qualifications. Financial parties have risk tiers that prevent investment into certain entities. Entities that lack basic infrastructure, capital solvency and professional certifications are disqualified regardless of their new innovation.

Soul searching is not required to assess your personal situation. A bit of reading, enlightenment and noting the facts will help you get to where you need to go.

Let’s start with understanding various financial parties and what each one requires. Each party is different. Each party requires its client to fit a certain profile.

A hedge fund is a private or publicly listed Limited Partnership that is organized to take advantage of opportunities based on an issued prospectus. These entities are organized in two manners.

A Reporting Entity and a Non Reporting Entity are the categories of hedge funds.

Hedge fund managers are often regulated by the state in which the hedge fund manager conducts business or by the SEC. Who a hedge fund is regulated by depends on the manager’s assets under management (known as “AUM”). Hedge funds themselves do not register, although there are increased reporting requirements for funds themselves as a result of the 2010 Dodd-Frank Act. A hedge fund manager may be required to register as an investment advisor with the manager’s home state, although registration requirements and available exemptions vary from state to state. A hedge fund manager is not eligible for registration with the SEC until the manager has greater than $25 million in AUM. Many states have recently adopted exemptions for investment advisors that only advise private funds (i.e., hedge funds and similar privately offered funds). These “private fund advisor exemptions,” as they are known, often restrict the investors that the hedge fund may accept and may include other requirements, as well. Navigating the state registration rules is complicated and will generally require the assistance of a hedge fund attorney with experience in state investment advisor regulations.

In summary a Reporting Entity typically has more than 25mm in Assets Under Management and a Non Reporting Entity typically has less than 25mm in Assets Under Management.

The key feature of this option is the “restrictions” governing the class of investors. The class of investors is limited to special types. Investors, capable of understanding something as complex as your technology, are typically Qualified Institutional Buyers (QIBs). Sophisticated professionals often involve themselves in the management of these entities.

If a private non reporting hedge fund is furnishing you an option remember the following: 1) You know the entity cannot have more than 25mm, 2) the hedge fund manager is not subject to any oversight, 3) there are limited options for flexibility, and 4) the hedge fund is operating as part of a syndicate.

All these items require prospectus that govern their investment allocations. Ask for the hedge fund investor offering so you can determine what they can and cannot do (known as a Private Placement Memorandum or PPM). Firm investment parameters are set in place before you show up. This means that investment grade or non investment grade language, region, reinvestment options, and benchmarks are pre-established.

Seldom will any QIB approve an investment into any entity that has 1) Net Asset Value less than 10% of its requested amount 2) Has less than 5% of liquid assets to contribute, 3) has failed to pay for items such as: permitting, domestic incorporation, accounting fees, et cetera and 4) Failed to properly program a technology application with robust coding.

Nearly 99% of entities that receive investment from Hedge Funds for startups have this material. If you are not in this position be wary of any offer.

Private Investment Groups solvent enough to participate in this structure are typically organized as Family Offices. Private Investment Groups not members to Family Office associations, non attorney led, and non investment professional (certified to adhere to ethics and policies of governing bodies) sport low success chances.

Private Investment Groups that manage capital employ competent professionals to 1) protect their capital, 2) give solid investment advice, 3) cover their activities under Professional Error & Omission Insurance, & 4) limit exposure by implementing solid hedges.

Private Investment Groups in principle never expose capital in unrecoverable assets or insufficient income assets. Typically the ability to liquidate is the concern with Private Investment Groups.

Any form of technology you create will always categorize as “intangible”. A patent or technology cannot be booked onto you financials unless someone physically pays for it. Creating an idea that is new is considered worthless according to Generally Accepted Accounting Practices (GAAP) and International Financial Reporting Standards (IFRS). Don’t make the mistake of telling a sophisticated financial person your company is worth something. Your company is officially worth nothing until someone pays for it. These are basic accounting rules.

Don’t show ignorance by claiming to be a CEO of the next one hundred million dollar company and failing to know accounting 101. You will show your rear and everyone will see it except you.

Typically Due Diligence for Borrowers or Investment Entities is more stringent and terms less attractive. The value on contract is paramount. Guaranteed streams of income are typically the only arrangements accepted by Private Investment Groups.

Build a third level verification for the payment system Bank of America utilizes…maybe you have some value at inception. Create the third level verification system independent and it’s worth your time plus track record.

No track record means your time isn’t worth very much (from an accounting prospective).

Appreciation, market sale and other items are valued less. Private Investment Groups are the option for individuals who: 1) Have Net Asset Value less than 10% of its requested amount & 2) Have less than 5% of liquid assets to contribute.

The key feature to this option is that principals must: 1) have won a Tender or Request for Proposal, 2) Have approvals, local contracts, concessions in place, 3) Executed a Statement of Work (SOW) with accompanying Revenue Document (Design and Implementation Agreement, Stated Payment Time, Contract timeline, et cetera).

Banks are the most conservative option. Options are subject to commercial underwriting and credit committee approval. As a principal the most basic question to ask is, “Am I considered a Wealth Management Client?”

If the answer starts with no…then the likelihood you have tangible banking options is akin to Iran being taken off the sanction list before giving up its nuclear program.

Many things are possible but these same things are highly improbable. The purpose of any bank loan is to reflect the bank’s credit rating in the loan portfolio. If you are unfamiliar with credit ratings it is important to understand. Banks do not obtain AAA credit ratings by making loans to individuals that do not have significant net worth and asset value “prior” to asset purchase.

Loan applicant profiles must be 1) very low risk, 2) typically reflect a personal financial statement (PFS) of 3–5% of loan value (sometimes up to 10%), 3) have personal income requirements to reflect Accredited Investor definition ($200,000 individual $300,000 household), and 4) if self employed have businesses with revenue in excess of 1mm USD per annum (for 3 consecutive years).

Some could argue lower investment grade banks are more stringent. The reason for small bank stringency is bad loans cause financial regulatory scrutiny. Approaching a small bank is not always the best option when searching for creative ways to capitalize your tech project. Often smaller (or non investment grade banks) will require liquid collateral (such as Stand By Letter of Credit or Bank Guarantee) to facilitate their loan.

Smaller banks or Non Investment Grade banks will grant the most pre-concession documentation; however will create conditions more difficult than top tier banks.

Often term sheets, approval letters, and other items will stipulate items such as high underwriting fees, closing fees, with cash equivalent collateral. Often the cash equivalent deposit is required to deposit in the institution prior to funding.

The reason for this is simple…“Banks that are smaller do not have the balance sheet or solvency reserves to facilitate your loan”.

This is not an issue. Your lack of financial standing often makes the bank a partner; however, it is important to note you are simply asking for a consignor. You need a consignor due to your lack of track record / assets / credibility.

Trade Platforms are not project funding conduits despite their prevalence of application in project funding. Trade Platforms are individuals, entities and persons who engage in speculation to achieve returns that are very high. Often these entities will engage in asset classes that produce: 1) volatility, 2) margin, 3) closed end transaction(s) or 4) futures. The returns for these transactions can be high. Often the mechanism (despite its inherent risk) can achieve project goals.

These mechanisms are not always 100% successful and require proper risk mitigation for failure.

Trade Platforms are innovations created for individuals who fail to meet the requirements of 1) Banks, 2) Hedge Funds, 3) Private Investment Groups and 4) Family Offices.

These unique mechanisms work by taking positions in various asset classes that capitalize on short or long markets.

In most cases liquidity is actually capped despite the high deposit claims. There are various reasons for this but the primary reason centers on trading being “counter party”. In every increase there is a decrease. In every win there is loss. In order to achieve gains another account must achieve loss. The loss is centered on liquidity providers and not transacting parties. Liquidity providers have data analysis software designed to locate high success chance loses and stop positions. Too much gain means a stop to operations and termination of contract. No contract means no returns. No returns mean loss or failure to transact.

There is no guaranteed rate of return. The high success chances of weekly / monthly / quarterly payouts are determined by proper risk matrices and exposure rates of principal balance. Margin trading is the sure way to lose ground, failure to maintain open positions and is recipe for capital loss.

The key component to this structure is money is required. You cannot participate in this structure without significant capital. Due to draw down strategies and institutional lot sizes (where success is higher due to non margin) it is typically unfeasible to deploy these strategies with less than 1mm USD.

A category left for last is “Joint Venture Partner”. These individuals / entities are industry experts who view money in non conventional ways. These people are industry professionals who navigate technology spaces efficiently. Their ability to judge new concepts, facilitate market demand and monetize new business is evident. These people are not options. These people are individuals who tell you what to do. These people take anywhere from 51–85% of your company.

Joint Venture Partners are extremely rare.

Even the best three point shooter in the National Basketball Association (NBA) history shot approximately .454 (or 45.4%). This person is Steve Kerr. He is a legend. A coin flip has more success chance of being accurate. How many Steve Kerrs will you run into in your pursuit to startup your business?

The odds of a joint venture means most joint venture partners are going to be anywhere from 20–30% accurate and take most of your company to show you their below coin flip chances of success.

Don’t believe me?

According to a Quartz article, where Bill Gates stated VC Firm performance was dismal at best (, the Kauffman Foundation was cited for its investment in VC Firms over a 20-year period. In 2012, Kauffman looked at the returns and found in the long run VC firms returned on average only 1.31 times what they invested (throughout this 20-year period). When a few exceptional performers were stripped out of Kauffman’s portfolio, the return rate was even worse. That was despite billions of dollars being invested. As many as three quarters of venture backed startups failed outright.

According to Kauffman what does what I do mean?

It means that the leading experts, that accepted billions of dollars from 1992 to 2012 to allocate to this type of asset class, sported a whopping 25% success rate.

I play odds. Odds are you will never encounter this person. When you do the odds are stacked against you 3:1. So I do not encourage setting up a company for a low odds success chance.

When analyzing alternatives it is important be realistic. Projects are entrusted to individuals who showcase low to moderate risk.

Don’t build a startup company presentation based on high numbers build a company based on high probability of success.

There is no source of money looking to entrust a million dollars to a bank account that has never discovered a deposit so large. Private Investment Groups are the most likely target. The catch is that the contract must be in place prior to investment. Factoring likely revenue is not a difficult decision to make.

Obtaining a contract prior to significant capital support is difficult. It is for this reason that Private Investment Group options feature low odds. You can only counter this option by being the engineer who personally writes the code.

High odds exist with Banks and moderate odds with Hedge Funds. Both options require net worth, proven track record, and sizable liquid resources. In order to play in high odds you need assets and need to appear wealthy. How you get there is another story.

Risk structures consist of trade platforms. Odds can be low or moderate depending on the sophistication of the principal. Often a sophisticated person is typically in position to take advantage of high to moderate conduits without risk exposure of trade platforms. Therefore participation of sophisticated persons is low.

Joint Ventures are rare and not really an option. If you are fortunate enough to obtain a joint venture partner it will be due to situational awareness, personal connection and a stroke of good luck.

So the options look dismal. You don’t have any of what I mentioned. The style of your long sought after VC Firm partner (who hopefully becomes a JV partner) only sports a 25% success chance. Hard to find and hard to be successful. Not my cup of tea. It’s certainly not your cup of tea.

How in the world do you do it?

The only high odds alternative without track record, wealth, or solvency to properly approach a tech concept (without requirements above) is to structure for retail. Retail is a path with 1) Accountability, 2) Transparency, 3) Ease of Liquidity, and 4) Professional Assistance. Budgeting is typically $75,000 — $250,000 plus registration fees.

That initial budget is called “Hustle Money”. If you are 1) charismatic, 2) creative, 3) likable, 4) social and 5) articulate you can make it happen. I have done it over and over. The catch is there is high risk and possible litigation that may happen if people invest solely because they “like” you and you do nothing measurable with the money.

Trust me I know enough of that.

The way to counter it is to become transparent and show third party regulators you mean to be honest. So you need to be wise enough to begin a listing process when you have nothing but wit, tenacity and a good mouth piece. Successfully listing means an open stock price and investors ability to sell in an established secondary market. You don’t need to give the money back to an investor they can sell it once it lists. This alleviates stress on you and your investor.

Undergoing a structured path to list a private security on an affordable public exchange (such as Bermuda BSX, Over the Counter OTC, Pink Sheets) is a manner to legitimize your hustle money. You can also raise the next round of seed capital required to be considered serious for a conventional route. If the budget size turns you off think about what you are asking.

“Would you invest millions of dollars into a person who has failed to invest less than 1% of what they ask to be structured properly?”

How would you respond to this question? It is important to never appear weak, negotiate from a position of incompetence, or worst confront a winter storm with a T-Shirt as your only source to shield you from cold. These are all foolish positions to take as they have odds that are significantly high in failure.

Often individuals romanticize about projects but do not gain prospective. Despite the operational proficiency, the financial component must be factored. The difference between a project principal and project employee is determined financially. Sound financial structures require serious comprehension. Analyzing a deal from a financial vantage point is the requirement of success.

Financing is the inhibitor to the majority of startup tech deals. Financial instability of its principals is the catalyst of the company’s financial implosion.

Low budget companies are built only if they are service based only. At some point a company will need money to grow. One person offering only their time can achieve only so much. Scale requires money. Money requires tangible track records.

Understanding how your financial stakeholder thinks is important. Failure to communicate on grounds your financial stakeholder understands results in road blocks, failed progress and project failure. You can do it just recognize how to speak financial party language.

Review other articles on how I discuss viable paths forward in middle space markets by following on me Medium or signing up for my quarterly newsletter. Don’t misappropriate time. Discover opportunities by doing what most Unsuccessful American Entrepreneurs don’t do…reading.

To your knowledge success!


About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 7.5mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at

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Christopher is a Professional Entrepreneur with over 14 years of experience, a Master Project Manager, Financial Analyst, & Master Financial Planner

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