Editor’s note: This article was first published in February 2011; its claims that banks and investors were coming to trust internet businesses more and that online shopping was an emerging market reflect that time.
It’s no secret. Money moves in cyberspace, and the most profitable businesses today were built on the internet. On this blog we keep advising every company to build a bigger presence online and, above all, pointing out that a good internet business idea can be worth many millions.
Right now internet businesses inspire much more confidence in investors and, above all, in banks, which would hate to miss out on working with a possible Mark Zuckerberg (Facebook) or Larry Page (Google). You could say that because they need a smaller investment and the profitability of this kind of business has been proven, they tend to get more financial support.
Add to this that users are growing more and more confident about buying online, and the result is an emerging market with healthy growth.
That said, it is one thing for online businesses to be proving their profitability and attracting more financing, and quite another for any project at all to be profitable.
Bank managers say that entrepreneurs turn up at their branch every day asking for financing for their project, but very few of them can explain where the profits will come from to repay the loan.
They also say they meet very energetic entrepreneurs with an air of superiority, who believe that with their idea they will be the next Zuckerberg in less than a year, and who usually leave very disappointed when the loan is turned down.
The bank managers themselves know that the most absurd idea can turn out to be the most profitable, but that doesn’t mean they can finance every absurd idea that comes their way.
Probably the first mistake people make when they look for financing for an internet project is to present a brand-new project that starts from scratch, with an entrepreneur who has no experience in this kind of business. It would be different if they already had a website up and running with a certain number of visits, or an earlier project that shows it can be done and that they know how to do it again.
Let’s put it this way: you can’t go to a bank with just energy and enthusiasm. You have to go with a good project and be able to show where the profit will come from and how long you expect it to take. Above all, and most importantly, you can’t go to the bank with a “baby” business; you have to go with a “teenage” business and have the bank help you turn it into an adult.
In short, it is not the same to walk into a bank and say “I have an idea that could be…” as to say “I have this business, which has already grown 150% in the last two months, and I need financing to keep growing.”
And one last fact: during 2010, the type of business project that asked for the most financing was “new social networks”, and, as you would expect, it was also the one that was turned down most often.
Further reading
- How people make money on the internet
- Internet business ideas have fewer problems getting financing
- Social networks focused on professionals and specific markets
- How to start your business project with no money
Featured image: Joi Ito; derivative work: Bonnifac, CC BY 2.0, via Wikimedia Commons.
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