the owners of this shirt company were ready for their next round of funding but had to take steps to make sure they ask for the right amount. and these entrepreneurs didn't want funding. a little cash to start up what's known as an ultra light. want to know how to attract investors and get the capital you need? find out next on a special funding edition of "your business." small businesses are revitalizing the economy and

american express open is here to help. that's why we're proud to present "your business" on msnbc. hi there, everyone. i'm j.j. ramberg, and welcome to "your business." this is a very exciting show for all of us here at "your business" because today marks the start of our eighth season. i want to take a moment to thank all of you for allowing us to be a part of your lives and your businesses. we're kicking off our new season by devoting the entire show today to a topic we get so many questions on. funding for your small business. and that's why we're going to introduce you to the founders of a company that needed some cash. rather than asking for as much money as possible, these entrepreneurs thought long and hard about the best way to grow their business. ♪

>> when you raise money, you need to be very clear about what you're going to do with the money. it's important to know yourself, what your needs are. >> they know a thing or two about looking for investors. >> some of the hardest decisions were, should we go with this investor or this other investor? and who is going to make the better partner? >> i think it goes to what are the goals for funding? >> raising capital for their online business can be a full-time job. >> between doing that and running the business. >> it doesn't matter if you raise $2 million, $20 million or $200 million, it's a process. >> the founders in richmond, virginia, have already closed on two rounds of funding for their 4-year-old company. >> the business is growing and it's been driven off people loving the product and coming back. and we've got about 65% of our customers come back between two and 35 times a year. >> the first round was for $250,000.

>> we had a small friends and family round getting the business off the ground. >> rather than going to one or two individuals, we spread it out among probably 20 initial investors. >> it quickly became clear that these entrepreneurs would need a cash infusion to expand the way they wanted. >> it was probably about the 12-month to 16-month mark. it was sort of the nature of the beast. >> before committing to the process, tribble and watson considered these questions to make sure ledbury was ready. >> how much money do we need to raise to prepare ourselves to scale up and grow the business going forward? >> with revenue up about 200% and the addition of a small retail space, they decided to go for it. >> we had the track record of running for about two years. we've proven that the model worked. >> and that's how ledbury series a came to life. the hope was to land $2 million. >> we said let's raise money to

be able to test these things to grow the business and scale it but not have enough money that the mistakes are going to be really expensive. >> the pair had three goals in mind when pitching to investors. at the top of their wish list was more inventory. >> to have shirts, to be able to sell shirts. we figured if we bumped up our inventory by two, we could grow 30%, 40% off the back of that supply. >> a consultant agreed that based on demand, there was definitely room for improvement. >> you know, basically, put it down on paper and said you're missing this many sales because you're out of stock this much. you just need more inventory. >> with sales going up, ledbury also needed a larger staff. >> we've outgrown the two of us and a couple other staff members we had. we needed to go out and get a few specialists. >> one area of concern was customer service where employees were multitasking. >> we did fulfillment here and the same place in our office space. they'd be answering phones and

packing boxes getting ready for the fedex guy. >> and finally, the company had to figure out how to promote the brand beyond word of mouth. >> it's about getting your own customers and creating a strong digital strategy for us to say, hey, we're here. >> when talking to investors, the order of their pitch was deliberate. >> not only were we raising money to address these three pillars, but we were doing it in that order. that's sort of how we roll out the spending. >> and ledbury's business plan was being updated and improved. >> it becomes dramatically better because you're sharing your dream, the workings of your company with people smart enough to help you out. >> not every investor said yes. the pair took every no in stride. >> one or two people who said no, you know, the timing wasn't right and the shirt business wasn't right for them. but i think we gained a lot of value from those conversations. >> it helped they knew what kind of partner they wanted.

any relationship had to be about more than just money. >> if you are in need of funding, but also in need of a little industry expertise, probably want that person that has some background and can sort of show you the ropes. >> after months of pitching and with commitments from old and new investors, the $2 million goal was met. they didn't want any more than that either. >> it's always nice to be able to look at the bank county and say it's nice to see a good, hefty amount of cash there. but i think what it's allowed us to do is keep very focused on what we're aiming to do. >> the most noticeable difference so far has been the inventory. >> we put, you know, 25% of the money we raised into beefing up our inventory and going deeper and wider. and we saw an immediate bump on that. gave us the opportunity to kind of test other product categories without putting too much risk out there. >> and customer service reps were no longer filling orders. >> we were able to outsource to

a third party vendor here in town. and that allowed us to focus on customers. >> the one catch has been the marketing strategy. >> there's no silver bullet. but it's how do we get in front of more of those people? >> it's a work in progress. >> people in this industry today are still trying to figure out exactly how to get that equation right. how much are you willing to spend to go out and acquire customer through a channel like facebook advertising or google advertising or something like that. >> despite the challenge, the pair has accomplished a great deal of what they set out to do. and it sounds like tribble and watson may be thinking about the next round of funding. >> we'll be able to test a lot of strategies and build a strong team if we do decide to go out and raise money in a year's time, we've learned the lessons we can take that money and put it in the right places to make it work. ♪ the folks at ledbury teach us an important lesson. knowing how much to ask for is a

very important factor in actually obtaining that money, particularly in later rounds. we have a great panel to deal with this investment issue. brad harrison is the founder and managing partner of scout ventures, a venture capital firm focused on great ideas in entertainment, media and technology. and christian anderson is president of a strategic design cons consultancy. there were so many interesting points in that piece, i think, about getting money. and one that really stuck out to me was the order of the way they present things to their investors. so that -- they said, first, we're going to use this for inventory, which is kind of like give us this money and for sure you'll get your money back. >> they're an interesting scenario in that business was already spun up. they'd proven out the model, right, people were buying the shirts. there was a market for it. so this is a really easy ask to

make of investors. which is, hey, we've launched the business, people love it, look at the trend line, we want to sell more stuff, help us do that. and we're going to use those dollars and cents for inventory. >> they were specific how -- well, they said they were, specific about how they used the money. when people come to you, brad, do you expect them to be that specific? or is it kind of, i trust you, you're smart, i know you're going to do a good job with the money i'm giving you. >> we hope everybody we meet, whether they're smart or not we can trust them. that's the thing in picking our entrepreneurs. but i think you need to know where they're going to use their money. if they haven't shown to you they have a well thought out plan, whatever it is, then you don't know how they're going to allocate the capital and it's not as easy of an investment decision. when you see that they have a well thought out plan and you can say, okay, i understand they have this data from their initial product launch, we can now scale the business, that's

what they're really -- >> and that well thought out plan could have branches, right? if "a," then "b," if they're doing a lot of testing, we're going to use our money for this, if it doesn't work, we're going to move our money to this? >> absolutely. if they don't exhibit a high level of flexibility or a bias toward that, you've got a problem from jump street. it's important for these folks to understand that you've got assumptions about what the next right move is for the business. we're going to execute on those assumptions, but we're also going to keep our eyes open if we've made a wrong call. if we're going to the left and should be going to the right. having the humility to do that. the analysts of history are full of extraordinarily successful companies that had to make those decisions repeatedly. >> let's talk about asking -- how you figure out the amount you're asking for. because they're already talking about how they may need to go out for funding again in a year. and it's very time consuming. >> so i think the issue is a lot of entrepreneurs, they look at how much equity they have to

give up as opposed to how much money they need to get to their next milestone. for us, what i would say normally whatever you think is the amount you need, ask for 25% to 50% more because you want that contingency plan if things don't go well, if the testing doesn't go well, to get things back on track. and i think in today's day in age, you're seeing companies raise an initial round and need an extension of that round to better prove out some of their hypotheses. >> and the last thing you want to do is spending time raising, fund raising when you actually want to be running your company. >> right. i would add to that, however. smart entrepreneurs are always raising money. they're either doing it passively or actively. there's this thinking that when should i start? when should i be done? when should i get back out there? and the truth of the matter is, at some level, you should always be engaged in that. >> we get this question all the time. it's been nice to get to dive in a little deeper to getting

funding. you know, some entrepreneurs out there aren't worried about getting funding for their companies. some small business owners have decided to do nothing but use their own savings to launch their businesses. these small businesses are known as ultra lights. many of them start online with a clear focus on social media in an effort to become profitable as quickly as possible. think you need millions of dollars to launch a new company? well, you don't. meet these entrepreneurs who have done it on a shoe string. >> started with pretty much zero dollars. >> we each put in $1,000. it was $2,000 start up. >> i put in about $7,000 of my own money. >> these companies are called ultra lights, business founded with practically no capital. >> the idea is that you're not going out and seeking venture capital. it's all money that's straight out of your pocket and out of

the organic nature of the business and what the business is generating on its own. >> the founder of ultra light start-ups new york says this business model is right for the times. >> investors are only giving money to successful serial entrepreneurs or people that already have traction. you need to get some traction first and the way you do that is starting with the revenue first and going on to scale afterwards. >> hamilton caldwell started his business on the stove in his new york city apartment. he knew he was going at it alone. >> it took a little boot strapping. i gave this thing everything i had. >> while leveraging the marketing power of facebook and twitter, caldwell spends the majority of his time in the new york city area and visiting the pennsylvania facility where in ultra light fashion, he has outsourced his yogurt production. >> if you were to start a yogurt

business 10 or 20 years ago, you might start with building your own production facility and building your own testing facility. and i think the fact he's using a shared kitchen and a shared facility he's able to produce his yogurt at a much lower cost. >> john and his partner brett have been able to keep costs down at their ultra light u blanket. the pair took to the web to start making blankets out of old t-shirts. they have the business up and running in no time. >> we hired a seamstress able to do the sewing and manufacturing for us and then i worked on building the site. and it was about a one-month start-up. >> the company's only staffers, but the pair says that has helped them streamline their operations. so far, customers have learned about u blanket through online searches, social media and friends and family. >> we have not spent $1 on advertisement yet. >> spencer and his business

partners haven't spent $1 on advertising either. >> it's an online portfolio service for artists to display their work online. to show off what they produce. >> the site started off as a personal portfolio. and thanks to word of mouth, the popularity has grown. that allowed the trio to make carbonmade a full-time business. >> it's about keeping, being very frugal and keeping expenses low and hoping more and more revenue comes in every month. >> carbonmade uses revenue to focus on improving the experience of the company's approximately 300,000 current users. >> for an ultra light, you want to build a simple product. you have few people to start. we had to launch with a paid plan from the start. and you need that business model where you're going to make money from day one. >> while carbonmade has had success, it's not perfect. the challenges he and other entrepreneurs face are similar.

>> you don't have as much access to capital. >> despite this, law ler says the ultra light model does have a clear advantage. you'll know your business better than anyone else. >> it really forces the best practices on you in the beginning. >> it forces you to understand your business, you know, from a very intimate level from the first stage, right. you're not hiring somebody to do your marketing for you and somebody to do your design for you and hire somebody to do your engineering for you. you're doing all that yourself. a good credit report is also important when it comes to asking for funding. here now are five steps you can take to improve your credit courtesy of entrepreneur.com. >> one, pay your bills on time every time. late payments can cause big drops in your credit scores and are the most common piece of negative information found on people's reports. two, keep your credit card

balances low. having a balance that represents 35% or more of your overall available credit limit on each card will actually hurt you. three, correct inaccuracies on your credit reports. fixing outdated or incorrect information is a quick way to give your scores a boost. four, don't close on used accounts. the length of time you've had credit is one of the factors considering when calculating your credit. and five, negotiate with your creditors or collection agencies. instead of skipping a handful of payments or defaulting on a loan, contact your lenders as soon as a problem arises and see if they can work with you to find a resolution within your financial means. there's more great advice about funding coming up on "your business." brad and kristian answer your questions. and it's back to school time as i return to stanford business school to find out what you need

to know about successful partnerships. ♪ i'm a hard, hard worker every day. ♪ ♪ i'm a hard, hard worker and i'm working every day. ♪ ♪ i'm a hard, hard worker and i'm saving all my pay. ♪ small businesses get up earlier and stay later. and to help all that hard work pay off, membership brings out millions of us on small business saturday and every day to make shopping small huge. this is what membership is. this is what membership does. time now to answer some of

your business questions. and all the questions today fit our theme about funding. this first one is about the right time for start-ups to seek out investors. >> is it better to wait to go after investors until you actually show more value? or is it better to go after the money right away so you don't have to worry about raising money? >> it's a great question. what do you think? >> it is. well, it depends, traction's always great, and in a vacuum, more traction is better. you've got to take into account you're burning cash while you're pursuing traction, what you need, you're put in a tough spot when it comes to negotiating and pursuing investing. >> it's a tradeoff. you're showing your company's working but they know you're

desperate. it balances out. what do you think, brad? >> well, i think you need to make sure the traction and the metrics you're showing are things that the investors care about. if you think you're in a vacuum building value around your own metrics and you meet with investors and they don't care about that data, then you haven't made any progress. what i would advise most entrepreneurs is, a, you're kind of always raising money, you need to continually talk to your investors and figure out what it is they're looking for in terms of metrics to illustrate your success. >> got it. let's move up to the next one. this one is about soliciting funds online versus meeting someone in person. >> with many websites now, do you think it takes away the personal interaction with investors and prevents you from being able to connect on a one-on-one level with investors? >> the question is do you need to connect on some of these people on one-on-one level or do you just want their money? >> i think you and i have talked about this a lot.

the right investor adds a lot of value. and you need to understand it's not just about the money, it's about the advice, the relationships and the experience of those investors. you don't necessarily get that if you're just taking blind money. i would say you need to look at where you are in your company and see do i just need money or need advice? and i would say most time you need money and advice. >> not every investor is going to be a strategic investor. there's a role for people who bring money to the table. with that being said. with the advances that we've seen in communication that have been brought forth by some of these crowd funding platforms, like angel list, funders club and so forth. communication is streamlined. even if they are on the other side of the planet, it's easy to stay connected. and at the end of the day, it's the founders' job to communicate, to do a good job of

communicating with investors and asking them what they need. >> let's move to the last question. it's about capital for international endeavors. >> what would be the best way to approach u.s. based foundations or investors about global focus projects? >> ideally to talk to somebody who has an interest, right, or has some experience in whatever the location you're moving into is? >> yeah. first you've got to do your homework. who has an appetite for those types of deals, right? if you're pursuing an organization that has a hyper geographic focus that's not global, you're probably barking up the wrong tree. assuming you can find organizations with an interest or appetite with funding those types of endeavors, the most important thing is the story. you've got to connect the dots for them. investors in the for profit world and the nonprofit world have a bad habit of showing up and expecting you to get it, right. you need to contextualize your

story. and if they want to eradicate poverty, for example, tailor your story for how your project or your business or endeavor is going to alleviate that issue. >> do you think it's harder to go to people like you or find people like you who are interested in investing in international ventures? >> we don't usually invest in international. and the reason we don't is we don't have the experience and the local relationships we think are going to add value. however, i think the point was made that you need to find the right investor who has experience. we do see a lot of investors that have experience in certain regions and take technologies from one region and they specialize in another global region. and i think those are probably the right investors. >> and maybe, look, you find another company that is not competitive to you but working in the same area. find out who their investors are. all right. well, thank you, guys, so much for your advice. very helpful. and if any of you out there have a question for our experts about

funding or anything else, go to our website. the address is openforum.com/yourbusiness. once you get there, hit the ask the show link to submit a question for our panel. that's openforum.com/yourbusiness. send us your questions and comments to yourbusiness@msnbc.com. looking to hone your business pitch? well, then our app of the week may be just what you need. the small business perfect pitch app gives you tools to help improve your two-minute elevator pitch. track and follow up on opportunities using the built-in calendar. and the app offers tips, video demonstrations and exercises that can be viewed when you're offline. finally, provides web links to more helpful online resources. 50/50, even steven, how a lot of people start partnerships when they're launching a company together. but making things 50/50 can cause big problems down the road.

recently i went back to stanford business school and i sat down with professors to get their take on the right way to do business. the founder of cr ventures gave me some advice on how to divide up ownership from the beginning. >> that's always the easy way. let's just do it 50/50. or if there's three founders, 1/3 each. but over time, the contributions of the two parties really were 50/50. but in a lot of businesses, one person's interested for a year or so and then they kind of move aside or within a couple of months it's obvious that one person is really kind of the person who is going to provide the leadership and the overall direction. >> so how do you determine how to divide up that equity in the company if it seems, at least in the beginning or in the moment, that it's half and half? >> well, one thing that founders don't often realize is you don't have to divvy up all the equity

up front. if you and i are going to start a business together, we'll say, all right, we'll each give ourselves 100 shares in the business but we're going to leave shares in the treasury. and then after a year, let's see how things are and what seems fair and right. >> you and your partner, you each get a certain ownership of the company. you have some set aside. and then when should you revisit it? six months, a year, two years. >> the earlier you have them in the company's life, the easier it is. if you wait until the thing is very valuable and very big and you're arguing a lot about, well, you didn't do very much and i deserve more. those are harder discussions. so entrepreneurs and small business owners are well served to visit this topic from time to time. don't be totally preoccupied with it. and just have an honest discussion. it's good. >> what advice do you have for someone who is six years in, ten

years in, it was 50/50 and they're upset about the weight they're carrying themselves. >> first of all is to talk about it. generally most partnerships, marital, corporate or otherwise don't do well when people are suffering hostilities quietly. this should not be a taboo subject. it should be okay to talk about between business owners. and if -- another technique is to vest the ownership or to gradually grant it over time. so in the beginning, you initially allocate the shares and you say that we going to allocate 100 shares to each of us. and as long as we're here for the next two or three years, then we'll own those shares at the end of that time. but, you know, you have an allocation and one person decides to leave or something and half the equity walked out the door, but one person left to do all the work. so there are ways to reallocate equity as a company matures.

>> i'm surprised at how many people are working together and have no contingency plan for what happens if you want to leave? what happens if, god forbid, something happens to me and my husband owns all the equity in the company. they don't have a buy/sell agreement. >> yeah, that's a really important concept. i wouldn't advise people to do that necessarily. let's make sure the business is viable. let's make sure it's going to have revenue. let's make sure it's going to be here for a couple of years. once we know we have something of value, then let's think about what could go wrong in terms of a departure and plan for that. >> all of these things, hard discussions to have but important. >> absolutely. >> thank you so much. >> to learn more about today's show, click on our website, it's openforum.com/yourbusiness. you'll find all of today's segments plus web exclusive content with more information to help your business grow. you can also follow us on twitter. and do not forget to become a

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