Posts Tagged ‘equity investors’
Business Financing Realities
March 31st, 2011
“Proper Expectation, Process, and Focus Are Keys To the New World Of Business Financing”
I had two very similar calls this week from business owners in search of business financing for a project in their respective companies.
The individuals had applied for financing at a financial institution and had spent months now trying to get an approval so that funding could be put into place.
Both were now at the point where they were starting to run out of time and were now frantically looking around on the internet for either a replacement solution or a bridge financing solution that would buy them enough time to get the desired funding in place.
I also get similar versions of this call all the time and I don’t expect much to change in the near future.
The problem starts with a fundamental lack of understanding of where we are at in the financial and capital markets these days and how debt financing sources and equity investors approach opportunities.
Sources of money are more particular these days as to what they will provide money for and how long it will take to make a decision and get funds in place.
Business owners still believe that if they have a good plan and a good story that they will be able to locate and secure funding without much trouble. Their basic mindset is “how hard can be be…or…how long can it really take?”
While there are times that the process of business financing can go fairly smoothly, My standard advise to anyone that will listen is that the its going to take longer than you think and its going to be more difficult that you imagine. If its easier than what I have described, then that’s a bonus, and you’ll be much further ahead of schedule, but just don’t plan for easy.
In order to get success, the approach you take and the process you follow is going to be very important. If you don’t understand what that means, then you’re going to need to invest in some help from those that do.
As far as focus goes, this was the main point I made to both callers.
Both individuals sounded like they had a workable situation underway. The key at this point was to focus in on what was required to get an approval in place and do whatever was necessary to buy time and comply with the lender requirements.
Starting a new funding request with a new series of lenders where time was already short would likely only serve to divert time and energy from the deal they needed to try and complete.
Yes, it most certainly is frustrating when a lender or investor takes their time getting back to you, or continually asks for more information or third party work to be done to complete their funding assessment. When the people you initially spoke with that were so keen to receive your application for financing and to assist your business now seem to be taking an inordinate amount of time working through their own requirements, it can be excruciating, especially if you’re on the clock.
And sometimes you also have to know when things are not going anywhere and then make a course correction. But typically when things don’t go anywhere in the world of finance is due to some combination of 1) talking to the wrong financing sources in the first place; 2) not properly presenting the information in a format and level of completeness acceptable to the lender or investor; 3) not having proper risk management in place to secure the deal; 4) not having enough time for financing process to be completed; 5) not staying on top of all the individuals that need to contribute to the application.
Unfortunately for my two callers, as soon as they hung up the phone with me, they probably called the next listing they found and put in a call. In most cases they will be greeted by a marketing person who wants to take a look at their file and see what can be done. In both of these cases, based on the information I was provided, this would only serve to take precise time away from trying to make what they already had going work…even more so if they make a few additional calls.
Click Here To Get In Contact With Business Financing Specialist Brent Finlay
Business FinancingDifferent Stages of Equity Financing
December 6th, 2010
“With Equity Financing, It’s important To Know Where To Look And What You’re Looking For”
For most business owners and entrepreneurs, this thing called equity financing is some what nebulous to say the least with all slices and sections of the market all thrown in together.
And while different forms of equity capital may be interested in very different types of business financing deals, there is some logic that can and should be applied to the pursuit of equity financing.
First of all, is your project is a pure development stage, pre commercial, or commercial with the need for expansion?
Each one of these stages of business development will tend to attract a different audience and command much different levels of interest.
For the pure capitalists, any type of deal may be something to consider if the investor believes they have the potential to get a strong enough return, but like most things in life, people in general, including equity investors, tend to have specific business stages they will consider for specific product or service categories servicing certain markets.
Second, the farther away you are from being able to sell something and make a profit, the harder its going to be to attract financing, and the financing you do attract is likely going to want the cake and eat it too along with the kitchen sink and all types of control.
The best way to attract equity is to 1) work from a position of strength and 2) be most focused on sources of money that already have a direct interest in what you’re trying to develop or bring to the market.
While I did say that equity investors can have very particular appetites, you can generalize somewhat and put them all into two groups. Group one is a pure venture capitalist that while only focusing on a narrow band of stuff, is still prepared to get involved in a project in the earlier stages. This group of investors are also prepared to look at a large number of opportunities before ever considering putting out any money.
Group Two represents people or companies with money or access to money who would be very interested in incorporating what you have developed or are developing into their business model to help fill a void, provide a missing piece, or turbo charge something they’re working on. The key to attracting this type of money is to have at least a working model or prototype of what you’re trying to do available to prove you’ve moved from theory to reality.
And if you have something Group Two wants, you’ve immediately increased your chances of securing equity financing as there may not be any other opportunities they are even considering funding that are related to what you have.
My advise on equity financing is, if at all possible, to focus on Group Two. Put together whatever money you can to get whatever you’re trying to do working at the smallest possible scale. At that point, you have something to sell and it shouldn’t be all that hard to find parties that would be interested, providing you’re trying to tap into an established market demand.
If you’re trying to blaze a new trail, that’s a whole other matter which will likely end up being more of a needle in the haystack approach of sourcing equity (sorry).
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingEquity Financing Considerations
September 5th, 2010
“There Are Many Things To Consider When Looking Into Equity Financing Options”
When seeking equity financing for an existing or future business, its important to make sure you have a clear understanding of what you’re getting into.
Many times business owners are either in too much of a rush or pressed against a wall to consider the pros and cons of any equity financing options they are considering, being more inclined to take what they can get. Even if there is more time available to consider the “goodness of fit” of a potential investor into the business operation, the key issues and considerations can still be easily overlooked or glossed over.
The primary thing to remember is that taking on an investor is like marriage. You could be involved with this new person or person for a long time, and breaking up the relationship at a future point in time may not be very easy or even possible to accomplish under terms you can live with.
That being said, one of the first tenants when considering taking on an equity investor is start with the end in mind.
The reality is that anyone who gives you their money is going to want it back, so it only makes sense that the ending of any proposed investor marriage is clearly lined out from the outset in a manner that is acceptable for both parties.
From the business owners point of view, the goal may be to be able to buyout the investor at a specific point in time for a clear dollar amount, or at least for a dollar amount that is calculated by an acceptable formula.
This creates a structure where both sides can size up the value to each other of getting involved in a transaction in the first place as well as providing some level of protection to both parties.
Selling off part of your company without doing this is dangerous to say the least. Everything can seem nice and light at the start of the business relationship, but things can change radically in a very short period of time.
And regardless if the business is ahead or behind on its financial projections created at the time equity financing was secured, there is a defined process for either party to deal with any changes in circumstances or expectations.
Once the honeymoon is over, its hard to predict where the relationship will go so it only makes sense to provide both sides with a way out that doesn’t potentially kill the business in the process.
Click Here to Speak to Business Financing Specialist Brent Finlay
Business FinancingHow To Cut To The Chase When Securing Capital – Part II
November 6th, 2009
Here is The Next Installment in How To Increase Your Odds Of Securing Capital From The Outset
In the last installment, we discussed the importance of starting off your initial meeting with a prospective lender or investor by cutting to the chase and quantifying exactly what you’re looking for in terms of financing and what it will be used for.
Once you’ve given the lender or investor enough information to initially qualify their potential interest in the deal, you’re either going to get a quick No, or they’re ready to hear more.
Focusing on the later, you now want to continue your presentation.
The second area the lender or investor wants to understand is your future projected financials (cash flow, income statement, balance sheet) and the related assumptions that drive the numbers.
As an example, virtually everything in the business can be associated with a time frame and cost, so the financial statements become a powerful means to convey the business story you’re trying to tell.
The quantification of market size, competitors, market share, price, margin, operating costs, and so on, all impact the financial statements directly or indirectly.
And lets face it, this whole process is all about money and making more of it, so its important to show your potential source of capital funding how they will get their money back, over what time, and the potential return they can expect.
When you can quickly show how you have quantified all the relevant information into income, balance sheet, and cash flow, it gives the lenders and investors something concrete to wrap their heads around while proactively answering a lot of the questions they will have before they even ask them.
This information can be highly summarized. Its just important that its covered off to maximize the interest level of those involved.
Too often, the business owner or entrepreneur is so completely focused on their sales pitch of what they’re trying to accomplish that the underlying financials are either glossed over, or not really addressed at all.
Remember that the more you can relate what you have to present back to dollars and cents, well quantified and supported assumptions, and realistic time lines, the more seriously you’re likely to be taken.
There is definitely a balance to be had between the marketing side of a presentation and financial projections. Just make sure you know your numbers cold so that where ever the discussion goes, you will have the answer on the tip of your tongue.
Business Financing