Kiplinger’s Retirement Report: “Help Your Child Launch a Business”

The tough job market has more people considering entrepreneurship. But starting a business requires capital that can also be difficult to secure, so many young entrepreneurs are turning to their parents for investments.

Bruce Bachenheimer, clinical professor of management and director of entrepreneurship at Pace’s Lubin School of Business, provides tips to parents who are considering helping an adult child start a business in the November issue of Kiplinger’s Retirement Report.

How much due diligence should the parents do to ensure the business is doable?  Should they require a kid to draw up a business and marketing plan? Should any loan be formal with a promissory note, etc.? How often should the parent check in on their investment? Should parents put kids in touch with other experts? How do you stay far enough away so you’re not meddling?  

Professor Bachenheimer’s “tips to parents who are considering helping an adult child start a business” are embedded below.

Crunch the numbers.

Bachenheimer suggests telling the budding entrepreneur you will invest your $50,000 after he or she finds outside investors willing to put up the other $100,000.

These investors “are going to know what a business plan should look like, what the valuation of the business should be and what the privileges of the investors are,” says Bachenheimer.

Write up the terms.

It’s critical to document in writing the terms of your loan or equity investment. At a minimum, your document should spell out the amount being invested, how the funds are to be used and how the parent investor will be repaid. Bachenheimer says you can find sample loan documents on the Internet or seek advice from experts at a small business development center.

“Parents usually have a very valuable amount of social capital,” Bachenheimer says. Your accountant, lawyer, banker, business associates or golf buddies could be potential customers, advisers or investors.

 

BPC/BizPlanCompetitions.com: “Pitch contests gain popularity”

For years, business plan competitions were the only option for would-be entrepreneurs seeking prizes, funding and the chance to get in front of venture capitalists via a competition framework. But now, more and more competitions are adding elevator pitch — or simply pitch — contests as an option within an overall business plan competition.

Many of the major Ivy League competitions — including Harvard, Yale and MIT — feature pitch competitions. The advantage of a pitch competition is that it’s much easier to enter, organize, participate and judge than a typical business plan competition, which typically encompasses an entire academic year, according to Bruce Bachenheimer, a professor of management who runs both the Pace University Pitch and Business Plan Competitions.

“Basically, competitors have three minutes in front of a panel of judges to sell their idea,” he told BPC/BizPlanCompetitions.com, a website which bills itself as the “world’s most complete listing of entrepreneurship contests and business plan competitions.”  He added that “there’s an audience for our competition, who can suggest questions, and who also get an education in entrepreneurship. Last year, Pace gave $50,000 in prizes to the competition winners.  The pitch competition has become very popular among business students.”

Pitch contests require different skills than business plan competitions.  In a pitch contest, you don’t necessarily need to have the fully-fleshed out idea that you need to succeed in a business plan competition. Instead, as Bachenheimer puts it, competitors need to “have excellent presentation skills, be quick on their feet, be able to provide a quick summary and be responsive to the very pointed questions of a panel of very distinguished judges.”

He’s very pleased with the way the pitch competition, which is now in it’s eighth year, has evolved. “In the beginning, some of the ideas were kind of crazy, but it’s gotten very serious,” he continues. “It’s very educational and very entertaining for the presenters and the audience. It’s a fast-paced, fun learning opportunity for everyone, including the audience.”

One big advantage of pitch contests is that they are relatively painless to enter. Instead of writing up a complicated, in-depth business plan that participants may have to revise numerous times over the months, a simple 500 word or so entry form, a brief biography and a 10-question form are the sole requirements for the Pace Pitch Contest. Not only is it simpler for the contestants, it is also much easier for the judges and organizers, he says.

And that makes it a good selling point for judges, who have to make a big time commitment to judge a business plan competition. Those can take months and judges must read multiple business plans, evaluate them at various stages and mentor competitions. With the pitch competition, it’s a one-day commitment. It’s also much easier on organizers, which is why it’s easier to start and run a pitch competition than a full business plan competition, Bachenheimer continues.