by Marcio Silveira, CFP, CFA, Founder of Pavlov Financial Planning

Entrepreneurial decisions

Entrepreneurs with innovative ideas and detailed execution plans often face the common start-up problem of lack of funds, particularly start-ups in industries such as technology, biosciences, and consumer goods where large amounts of capital are needed. Of course, founders usually do not want to give away the ownership of their businesses, making it harder to find investors.

The funding of start-up ventures is always a challenging process. In this blog post, we will review some aspects of the traditional funding process.

Sources of funds

The first source of capital to fund new venture projects is the money coming from the founders. It is expected that founders put a substantial part of their net worth into their projects. Everyone, especially potential investors, want to see that founders have “skin in the game.”

The second source of capital is often described as the three F’s – “family, friends and fools.”  This group of investors is comprised of individuals with a personal connection to the founders who generally have no start-up investment experience. Since the vast majority of start-up companies are privately held businesses, these investors must be accredited investors.

Entrepreneurs quickly exhaust this group of inexperienced investors that are able and willing to invest. In order to continue funding the business, they must sell the investment opportunity to a different group of investors who are a more experienced in funding start-ups. These people are called Angel investors. Often times, these investors have started their own companies and were able to accumulate at lot of wealth in the process. The successful engagement of Angel investors generally determines the outcome of the fundraising effort.

Another group that contributes to the funding of young and high-growth companies is made of professional investment companies that are generally organized as limited partnerships. They are known as Venture Capitalists. Once a Venture Capitalist is engaged, the start-up has a high probability of meeting the funding needs if the concept and execution aspects are solid. Most start-up companies are never funded by a Venture Capital firm, but those who are have higher chances of success.

The final way young and high growth companies obtain funding is via an Initial Public Offering (IPO) or an acquisition from a strategic established industry player. It is common in this phase that the public or the strategic player funds the company and also provides an exit to funders, angel investors and venture capitalists. This exit has the potential to be extremely profitable, and this profit potential is what motivates founders and investors to take the high risks. Sometimes the founders and angels stay much beyond the IPO, as each company has its own exit dynamic.

Critical factors for success in start-up fundraising

To achieve successful fundraising efforts for a start-up, founders must be determined to achieve their fundraising goals. Critical factors for success include:

Iron will – Founders must be able to keep going and overcoming the inevitable setbacks.

Full commitment of founders – It is critical that the entrepreneurs are fully dedicated to the project. If there are competing activities that take the focus away from making everything happen, investors are less likely to act.

Professional team of advisors – Start-up fundraising can be very complex because it involves aligning people with conflicting interests. Valuation negotiations can be very difficult and legal aspects can be tricky. A high quality team of legal, accounting, financial and technical advisors is highly desirable.

Achievement of milestones – The funding of start-up companies with the potential for exceptional growth is done in stages or rounds of fundraising. The successful execution of the business plan with concrete achievement of milestones makes the next round a lot more likely to succeed, as well. With proven success, the financing of the project becomes easier and easier and the focus should be on running and growing the business.

by Martin P. Griffin, Principal, Meany & Oliver Companies, Inc.

We have all taken geometry class at some point during our education and understand the concept of l x w = a (length times width equals area).  It is a relatively simple measurement, but how come most tenants are paying rent on more square footage than they actually occupy?  Are landlords taking advantage of them or is there something else going on?  If there is one concept that tends to confuse and frustrate commercial tenants the most, it is the measurement of usable versus rentable square feet.  In this blog post, I hope to clarify this issue for non-real estate practitioners.

When calculating the size of a suite for lease, the first place to start is with a measurement of Usable Square Feet.  This is the area of a suite that will be occupied by the tenant.  It is the calculation of the space available for the tenant’s exclusive use and that is not accessible by other tenants. It is measured from the surface of the exterior walls and windows to the middle of walls shared between other tenants’ spaces.  No deductions are made for building columns that are within a tenant’s space.

Once the usable square footage is established, a Common Area Factor is added to measurement of the space.  The common area factor refers to the shared spaces on the tenant’s floor and the areas of a building that services the entire property. These areas include building lobbies, public restrooms, elevator lobbies, access corridors, conference centers, public restrooms, fitness centers, loading areas and utility rooms. Vertical penetrations such as stairs, elevator shafts, utility runs, and vertical ducts are not measured when calculating the common area factor. 

When calculating the common area, architects typically use a method of measurement that is referred to as the "BOMA Standard.”  This is an industry standard method of measurement created by the Building Owners and Managers Association International (BOMA). This standard has evolved over time and is revised from time to time to reflect the changing needs of the real estate market and the evolution of office building design.

The common area factor (also referred to as the Core Factor) is often referenced by both landlords and agents as a percentage that typically ranges from 12% – 20%.  In buildings that have large atriums or inefficient designs, the common areas factor can go as high as 25% - 30%.

The Rentable Square Footage of a suite is a combination of the usable square feet and common area factor as follows:

Usable Square Feet X (1 + Common Area Factor) = Rentable Square Feet

This is the square footage the tenant actually pays rent on and should be considered when comparing different buildings. 

Two buildings may have the same face rate and rentable square footage but different values when occupancy costs are calculated on a useable square foot basis. To protect the tenant, it may necessary to have the space re-measured.  A tenant, at its cost, may request that an independent architect measure the space.  If a building is extremely inefficient and the common area factor is not in line with other buildings in the market, it is not unheard of for the landlord to cap the common area factor in order to attract tenants.

Working with a good commercial real estate advisor can help your firm evaluate all the options.  The advisor will do most of the work and provide you with the guidance necessary to avoid the pitfalls of the commercial real estate process and make sure you get the best deal possible with the most value per usable square foot. 

by Barbara Nicastro, The Law Offices of Barbara E. Nicastro, Esq. 

When I first joined the Chamber, I didn’t go to the Gala. Frankly, the idea of getting dressed up and going to a big party without a date was daunting. (Don’t ask about the “not taking a date thing!)  Ultimately, I had a change of heart, and am I glad I did. Now, I view the Gala as an event to be anticipated, thoroughly enjoyed and remembered fondly.  Let me share with you why attending this year’s Gala is something you should do.   

1. It’s a well-planned party where all you need to do is show up and enjoy yourself! 

While I don’t know what the philosophy was behind the Gala 90 years ago, I can tell you that the Gala Committee works hard to make each year’s Gala the best party ever.  Chamber staff starts early with the “template,” but the real work begins in November when staff and Chamber members get together to make it happen.  We brainstorm for new and interesting ideas for the cocktail hour (our signature Chamber drink, for example), the silent auction (our fur coats and jewelry and different items each year), the live auction (interesting big ticket items), our raffles (to Italy and St. Lucia) and our games (Heads or Tails).  We make sure that the band will play songs that are fun to dance to (anyone remember the swing band we had way back when? I don’t swing...do you?).  Staff works with The Ritz Carlton, Pentagon City to select food and wine for the evening to ensure interesting, deliciously complementary choices.  And the day of the Gala, staff and volunteers work tirelessly to get the Ritz facilities ready for the silent auction.

2. You can get some great stuff at the auctions and raffles.

Over the years, I have managed to purchase gourmet wines, photo shoots, a fur-lined cape, massages, tickets and personal services via the silent auction.  Often you can score a great deal, but even if you don’t, you’re helping the Chamber by making a purchase.  And while I haven’t won a raffle yet, I have friends who have, so I’m optimistic about the future.

3. You will get the chance to spend quality time with people in a social setting.

There is no other Chamber event where you can do this.  You will be able to create or strengthen friendships that go beyond the normal business networking conversation.  And your spouse or significant other will also be able to see exactly why this Chamber is so important to what you do. Besides, it’s too cold to play golf so view the Gala as a winter version of 18 holes with potential business connections!

4. You can enjoy yourself with a date or by going stag!

Sure, you can bring a date if you want, but in the past 6 years, the Chamber staff has taken great pains to make sure that solo guests have as much fun as those in pairs. The cocktail hour is highly social and welcoming.  Dinner seating is carefully arranged so that people coming by themselves are placed with other singles or people who are highly compatible.  Dancing is a group activity to which all are invited.  Many people (me included) have started coming by themselves just because it’s often more fun! 

5. Your presence is important to the Chamber.

We like you.  We really, really do.  And we want to get to know you better.  And experience the true value of being a Chamber member.  Here in Arlington, our Chamber is synonymous with “relationship,” “deep connection” and “value.”  We are a quality-based organization whose goal is to help you all succeed, prosper and enjoy yourself in the process.  Having you help us celebrate our 90th year of serving businesses and organizations in the Arlington community in this fun, social setting will enhance our enjoyment…and make you happy as well.

Hopefully, you’re convinced to call Kate or Cassie and buy your ticket for the Gala.  And, if you’re already coming, I hope this has only whetted your anticipation for the wonderful time you’ll have in a little more than two weeks!

Editor's Note: The 90th Annual Arlington Business Gala is on Saturday, January 25 at The Ritz-Carlton, Pentagon City beginning at 6:30 p.m. Registration deadline for individuals and sponsors is 5:00 p.m. on Friday, January 17. To purchase your tickets, register online or call the Chamber office at 703-525-2400.