Start-Up Magazine Financing/SBA???

[zachres]

Hello,

I just found this forum today... lots of helpful information. i have a fairly detailed question about financing options.

My wife and I are attempting to raise capital to launch an outdoor sports magazine targeted at a specific group of enthusiasts. We have spent 3 months putting together a well-researched, solid business plan. We also have roughly 40% of the overall project cost available to us from savings and smart investing over the years.

We are running into a major conundrum in speaking to banks about financing, though. Here is where we stand:

As I understand it, and as has been communicated to me by both the SBA and other small business owners, the role of the SBA in a lending scenario is to act as a guarantore of between 75% and 90% of a business loan, based on a series of variables. Their mission being to enable the development of small business that would otherwise not be able to find financing, specifically where a business or start-up can not fully collateralize a loan.

Speaking to our local SBA director, we mapped out a possible loan strategy that looked like this:
total project - $250,000
cash contribution from founders - $25,000
total loan - $225,000
amount guaranteed by SBA - $168,750
amount to be collaterallized by founders - $56,250

This makes perfect sense, per all of the material that I've read on the SBA website and information that I've received from other small business owners... but here's the catch - these other small business owners are all in other parts of the country.

In my region, every bank and small business advisor that we've spoken to has told us that the banks will only lend money if the SBA secures 75% AND we secure the loan with 100% collateral

Soooo... what in the world is the point of the SBA? Am I missing something?

Anyway, so I guess I have 2 questions:
1. Is this standard bank practice in other regions, or am I in a unique part of the country?

2. Does anyone know of other sources for loans or capital investments for niche magazines?

Zach

[nado]

Try someone other than a bank if you've tried every single one you can find.... VCs, individual investors perhaps?

And if all that fails, start online.

[jpmorgan13]

Sounds like you need an angel. Most of your troubles would be solved by doing so.

[akula]

Hello,

I just found this forum today... lots of helpful information. i have a fairly detailed question about financing options.

My wife and I are attempting to raise capital to launch an outdoor sports magazine targeted at a specific group of enthusiasts. We have spent 3 months putting together a well-researched, solid business plan. We also have roughly 40% of the overall project cost available to us from savings and smart investing over the years.

We are running into a major conundrum in speaking to banks about financing, though. Here is where we stand:

As I understand it, and as has been communicated to me by both the SBA and other small business owners, the role of the SBA in a lending scenario is to act as a guarantore of between 75% and 90% of a business loan, based on a series of variables. Their mission being to enable the development of small business that would otherwise not be able to find financing, specifically where a business or start-up can not fully collateralize a loan.

Speaking to our local SBA director, we mapped out a possible loan strategy that looked like this:
total project - $250,000
cash contribution from founders - $25,000
total loan - $225,000
amount guaranteed by SBA - $168,750
amount to be collaterallized by founders - $56,250

This makes perfect sense, per all of the material that I've read on the SBA website and information that I've received from other small business owners... but here's the catch - these other small business owners are all in other parts of the country.

In my region, every bank and small business advisor that we've spoken to has told us that the banks will only lend money if the SBA secures 75% AND we secure the loan with 100% collateral

Soooo... what in the world is the point of the SBA? Am I missing something?

Anyway, so I guess I have 2 questions:
1. Is this standard bank practice in other regions, or am I in a unique part of the country?

2. Does anyone know of other sources for loans or capital investments for niche magazines?

Zach

aha.....good questions, good people, here're some answers:

quick and easy: There are like 30+ different ways to finace your venture. Go to http://www.antiventurecapital.com/ and talk to Peter Ireland who spelicilises in answering questions like yours.

complicated and hard: the number of financing options for your venture is depenant on the kind of the decision you make as an investor. If you, yourself, decide to invest in an outdoor sports magazine, you will find it difficult to get support from other investors - because your venture is not an interesting investment opportuinity: it's too niche, not defensible and in a sector that's in decline.

In that sense, I guarantee you that you are gonna have limited financing options, because you've limited your self to pitching a startup which is unfinanceable. The kind of opportunity that you have does not fit with everyone's common investment criteria: whether you are talking about angels or institutional investors.

To correct this situation, and create more financing options for your self, you need to change your pitch and tell people like me what we want to hear: this is a list of words, which you can complile by reading vc blogs listed here: http://southerncrossventures.com/Blogroll

Anyway, change your pitch, find out what you are supposed to say, and then - you'll have more financing options.

Right now you are making a choice to lmit your self to bootstrapping and customer finance. Not that there is anything wrong with that.

[zachres]

Akula,

Thank you for the response... I wasn't necesarily "pitching" in my post, though judging by your feedback, maybe I should have been.

I am working with a few members of my advisory board who have been involved in a number of start-ups as both entreprenuers and investors to narrow down the scope of our executive summary, to better fit the interests of VCs and Angels. I'll insert the text below, and any feedback would be appreciated.

BTW - the Outdoor Industry isn't posting the same high numbers that it was in 1999 and 2000, but in a 7 to 8 year view, it is stable. That being said, our plan in large part plays to the price sensitivity of manufacturers within the industry vs. their need to market to their most desirable customers; hikers.

Here's the text:
Hiking Magazine
Executive Summary
There is a surprisingly large, open market niche in the Outdoor Sports Industry. Hiking, the second largest and most diverse human-powered outdoor recreational activity, in terms of participation, is currently being served by only one periodical. Hiking Magazine will be positioned to satisfy the needs of both readers and advertisers that are not being met by the competition. The combination of these customer bases and the directly applicable skills and experience of its founders will make Hiking Magazine cash-flow positive within 2 years.
In the United States, there are 11 million hiking enthusiasts, defined as the top 15% per their incidence of participation. These are the readers that Hiking Magazine will attract. It will do so by being more focused in its editorial content than the competition and by offering a higher quality product that appeals more to the aesthetic of the hiking community. These readers fulfill the classic 80/20 business rule wherein 80% of a company’s sales comes from 20% of its clients. They are the small percentage of the market that generates a disproportionately high percentage of the market’s revenues.
As a result of attracting these readers, Hiking Magazine will be able to gain the business of advertisers from within the Outdoor Industry, the manufacturers of apparel and equipment that service sports such as hiking. These advertising customers were the driving force behind the actual concept of Hiking Magazine. The idea was actually hatched out of a conversation with a key decision maker at Garmont, a boot manufacturer, and one of the founders of Hiking, Zach Davis.
In this conversation and through subsequent research, it became clear that the only magazine serving hikers, Backpacker, had alienated these advertising customers through simple, scale economics. Backpacker is seeking a share of the larger market of hiking participants, which number 76 million in the United States. In doing so, they support their massive production volumes by charging more than $30,000 per page of advertising. There are many companies such as car manufacturers and travel bureaus who can afford these rates, but the potential customers in the Outdoor Industry simply cannot.
Hiking Magazine will follow a very different strategy of producing a higher quality product with a higher cover price, at a lower volume. This will guarantee that its’ readers will be more enthusiastic about hiking, thus higher qualified in the eyes of advertisers that service the sport. Hiking Magazine will then charge considerably less than its direct competitor for advertising. However, when calculated as a cost per-reader, Hiking will actually command a higher price.
For most magazines, advertising generates an average of 60% of their revenues. The key to Hiking Magazine’s success will be its access to this under-served pool of advertising customers. Hiking Magazine will be able to rapidly develop a base of advertising customers who are grateful for the opportunity to present their marketing message directly to their most important customers, and it will be able to sell to both readers and advertisers at healthier margins than its competition.
The two founders of Hiking Magazine, Zach Davis and Francesca Georgiou, together represent an impressive combination of skills, experience and knowledge in sales, marketing, business management and publishing.
Zach has had a highly successful sales career over the past 8 years, with recent tangible expertise in advertising sales in the Outdoor Industry. For the past 2 years, he has been intimately involved in the business operations of Couloir Publications, a publisher of 2 niche skiing magazines that adhere to a similar production and sales strategy as that being pursued by Hiking Magazine. In this capacity he has been able to establish working relationships with many of the key advertising customers that Hiking Magazine will seek to do business with. He has also gained an in-depth knowledge of the marketing and production drivers of the Outdoor Industry.
Francesca possesses over 9 years of experience in the publishing industry, with specific expertise in marketing, advertising and general management. Being employed by publications such as The National Law Journal, The Street.com and The Daily Deal, she has been highly effective in developing and implementing subscription and consumer marketing plans, generating advertising sales campaigns and in the efficient application of emerging technologies.
Zach is a pro at advertising sales with a broad list of contacts in the Outdoor Industry, and Francesca is equally adept in managing the core production, work-flow, and marketing functions of magazines. Hiking Magazine will be a well-positioned, high-quality product with broad appeal, and projections for it’s’ profitability are highly encouraging. Our market research, sales forecast and financial analyses all support a very optimistic outlook.
Total Project Cost - $250,000
Total Contribution From Founders - $65,000
Funding Needed - $185,000
Projected Profitability - $500,000+ at end of year 2, Grows exponentially with volume

[akula]

Akula,

Thank you for the response... I wasn't necesarily "pitching" in my post, though judging by your feedback, maybe I should have been.

I am working with a few members of my advisory board who have been involved in a number of start-ups as both entreprenuers and investors to narrow down the scope of our executive summary, to better fit the interests of VCs and Angels. I'll insert the text below, and any feedback would be appreciated.

BTW - the Outdoor Industry isn't posting the same high numbers that it was in 1999 and 2000, but in a 7 to 8 year view, it is stable. That being said, our plan in large part plays to the price sensitivity of manufacturers within the industry vs. their need to market to their most desirable customers; hikers.

I dunno my friend, you sound like a nice person, I want to help you, but you must understand that you are setting your self up as a duck. A magazine, is not a business that's financed by traditional private equity. You are gonna be up against other entrepreneurs and you will lose because what you are doing is unsuitable for funding. This is NOT personal opinion.

I implore you, for the sake of your wife, don't be stupid, don't be proud, don't be stubborn, go talk to Peter Ireland and build a proper business without relying on angels and vcs.

I have seen your movie many times, and you're in for a lot of pain if you choose to not listen to me.

Do the right thing, see Peter, and start expanding your mind to include things like intrapreneurship, trade credit and customer finance.

Sidenote:

Look, I know that you don't want to hear what I am telling you - but, maybe that's the signature of quality advice.

This is how investors will read your pitch:

"Ok....hmmm..magazines. Do I invest in magazines? No. Why don't I invest in magazines? Because no-one else invests in magazines. Why doesn't anyone invest in magazines? Because they lose money and they are not a significantly better opportunity than other opportunities."

"So what do I do? - put plan in trash."

My friend, you just need to understand this very important thing. No one, I mean no one, is going to read your executive summary, let alone your plan. A magazine is a magazine is a magazine: I don't need a document to tell me that it's a magazine. People invest because their friends invest. I'm not sure if you will be able to find even one angel or vc who has had a successful exit on a startup magazine in the last 2 years.

If you can....go and pitch that person.

I mean ...hell, you guys worked at TheDeal, you know how these things are. Just give me the phone number of someone who's made money doing what you wanna do and stop torturing your self with these fairy tales called executive summaries and business plans. I know they're not gonna work out, you know they're not gonna work out, so why bother kidding eachother.

You been around this stuff, you know how it works, I dunno why we are having this conversation.

[BizGuy]

Zachres,

Welcome to the world of publishing!

We currently operate three niche market publications and it has taken some BIG BUMPS and BRUISES to get to where we are now.
I agree with SOME things AKULA has said but not all.
Coming from a PROFITABLE publisher, I can tell you that AKULA is correct in saying that VC's don't normally invest in this type of project.
Your best bet, is going through the old fashioned 'friends and family' route for raising your start up capital.

Is this publication going to be a national? New stand?
What is your distribution methods?
Audited circulation?

I would need to know quite a few more details in order to assist you with your start up of this venture and maybe save you thousands of dollars while assisting. I have mentored and assisted several magazine startups over the past year and I'm happy to offer you suggestions and advice.

Please feel free to PM me if you would like.

Akula is probably the epitomy of a "Realist" and has a lot of valuable advice to offer. In this case, I know that the publishing business is a tough one but can be VERY rewarding.

Let's keep this dialogue going as I know there are many other people out there that are interested in the publishing world.

Best of luck,

Adam T.
Co-founder
YoungEntrepreneur.com

[aeromech]

Hi everyone,

I'm keen on starting an Aviation Magazine too. But found that most of the people I discussed with actually found starting a mgazine absurd, as they thimk that the Internet has taken over ever since its inception. I'm wondering about the same too. Could someone advice me on this please.

Thanks!

[akula]

errrrr...yeah.....it's complicated

is there a list of questions you want answers to?

[aeromech]

Hi all.
yeah Akula
Infact I was seeking some answers to..
1. What could perhaps be the best way to promote the magazine? Considering that in India this would perhaps be the first aviation magazine.
2. Also How would I determine market size for the same?
Thanks!

[akula]

Hi all.
yeah Akula
Infact I was seeking some answers to..
1. What could perhaps be the best way to promote the magazine? Considering that in India this would perhaps be the first aviation magazine.
2. Also How would I determine market size for the same?
Thanks!

Thanks, great questions.

the answers to 1 and 2 are purely technical. any decent textbook on entrepreneurship will tell you how to select promotional strategies and determine size of market. For example, the Portable MBA in Entrepreneurship covers these topics.

here's a question for you: in comparison to all the other business opportunities, why are you selecting to invest in an aviation magazine?

[aeromech]

Hi Akula,

Well I'm an Aviation Enthusiast as well as a student in Aeronautical Engineering. I'm also planning on starting a Microlight manufacturing unit here in India sometime shortly. I'm more keen on designing unconventional aircrafts.The reason for a magazine being that its just not there in the market here in India and I guess being the first in this area I could create a niche. Ditto for microlights.Any ways its fun to be associated with aviation industry in everyway for me.

Thanks!