“No, you don’t need a lot of money to start an ISP, but you’ll surely need a lot more money to keep it going,” the saying goes. “As most of us in the business know, the costs just keep adding up, and with the constant opportunity for technical upgrades the need to raise capital can come more quickly than even the best business planner could expect,” said the vice president of a New York ISP. It’s certainly no secret that raising capital is one of the biggest challenges faced by ISPs, but ISPs can be most effective when they keep in mind that certain prospects are better than others.
Banks, for example, aren’t likely to touch an ISP with a ten-foot pole, and private investors aren’t generally very good prospects either. The ISP business is still too risky a proposition for both, offering too little in the way of predictable and timely profits to make the investment seem worthwhile.
It’s best to use your energy to pursue better prospects. They include large existing businesses that are looking for an ISP outlet. They could be hardware vendors or business solutions companies. These kinds of businesses can be as interested in building a relationship with an ISP as you as you are in raising capital for your business.
“What you should do is look at who in your local market is selling high-end communications related products to businesses or consumers,” said the vice president from the New York ISP. “This could be your local telco, an alternate long distance carrier, or people selling expensive data and communications software packagers.”
Why are these businesses good bets? Because they’re looking for something other than a share in a profitable business. The ISP becomes a channel through which these businesses can sell their products. They’re really buying a valuable relationship with an ISP — valuable because they know it will be much easier to sell their products to existing accounts than to start from scratch.
Increasingly, ISPs have to be savvy as they look for capital, especially since a lot of ISPs are already having trouble with existing investors. “A lot of investors are tired of not making money,” said Doug Hass, vice president of Skyenet, an Indiana ISP “Money’s still around, but in many cases existing investors are getting anxious to see some return.”
New investors who have heard many of the battle-stories are likely to have similar concerns. Keeping this in mind, ISPs can make best use of their energy by approaching potential investors who will find an ISP more valuable as a channel than as a business that is going to be profitable in the short-term.