Posts Tagged ‘venture capital’
Different 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 FinancingThe Person With The Gold Makes The Rules
November 10th, 2010
“When It Comes To Debt or Equity Financing, The Business Owner Seeking Money Has To Not Only Be Patient But Submissive At Times”
One of the most frustrating aspects of trying to locate and secure business financing from private debt or equity sources is that the process hardly follows any type of formula. The people with the money entertain offers from people that want to utilize the money and sometimes deals are worked out.
Sorry, but that’s about as scientific as it gets.
The people that either own or control the gold make the rules, make them up on the fly, or change them whenever they want. If you don’t like their approach, don’t try to work with them. The problem, however, is that most sources of private financing are going to act in a similar fashion.
And as I have been told on more than one occasion when I got into a discussion as to how a financing deal could or should be structured…”Its my money and I’ll do whatever I like with it”.
Obviously if private funding sources were always completely unreasonable and unpredictable they would never lend or invest much of anything. So for the most part, there is a method to their madness. But that doesn’t stop weird and unpredictable things to happen from time to time.
As a business owner seeking capital, you need to be prepared for this type of experience and temper your ego and tolerance level at times to allow for funding opportunities to eventually unfold in your favor. The passive and patient approach isn’t always going to work, but its going to score more results than a frustrated and demanding demeanor will.
Since 2008, there are arguably less active sources of higher risk capital reviewing more potential requests for capital. So for venture capital, angel investing, and hard money lending they basically have their pick of deals and tend to take their time in order to make the best potential choices.
Another challenge with private funding sources is that these are typically not large organizations and usually are operated and controlled by a handful of people. So when they are in the middle of one or more deals, it can be hard to get their attention until some time in the future. They will also have finite resources so its also a case of having a deal they like at a time when they have money available to put out into the market.
And if a better deal comes along when they’re 90% along with your deal and they don’t have enough money for both, guess who’s going to lose out.
Acquiring private capital is both art and science, can require great patience and perseverance, and has a lot to do with timing.
Keep these points in mind before starting on your quest for capital.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingWhere To Go To Secure Capital For A Start Up?
October 29th, 2009
How Do You Secure Capital For A Startup?
The first thing to discuss is where not to look when you’re trying to secure capital for startups, which is in the most obvious places.
Unless there is a government sponsored loan program administered by the major banks, the lenders that you see on the television every day have absolutely no intention of lending you any money for a start up business venture.
Yet because of our branded conditioning, it tends to be the first place everyone goes and the first place they get turned down too.
Once you have maximized your personal financing potential and taken full advantage of you family and friends, you have to start thinking outside the box whereby the box being walking into a bank and applying for a loan.
First, focus regionally. Wherever you are, there is going to be local, regional, and national business development programs that are designed to increase the business tax base and maintain or add jobs to the economy. These business development programs are designed largely for businesses that are not yet “bankable” but have a sound basis for commerce and intend to hire employees. And while many of these types of support programs tend to focus on small dollar loans, there are exceptions.
More specifically, I’ve seen some regional development programs that will shell out millions in loans and guarantees for the creation of industry and jobs in certain areas. This of course is area specific, so if you want to get access to the funds, you have to be willing to relocate to the area that has the money.
Second, government grants and loans are out there and can be secured. However, most government grants and loans are in place because there is a lack of some service or product that they are trying to draw business owners towards. So if you want to take advantage of government funding, then you may want to research what they are supporting before you choose your business venture otherwise there may not be anything available for what you choose.
Third, other related businesses that want a certain type of product or service, but can’t readily access it and don’t have the time to create a related business themselves. What could be better than having a major customer right off the bat that also has a financial stake in your business and is therefore motivated to help you succeed?
Fourth, there are equity investors that are on the look out for businesses they can buy into. Just remember that this can be a very demanding form of capital that is typically looking for high profit potential and experienced partners that know what they’re doing and have a track record to prove it.
If you want to start a venture that requires capital, then you need to work backwards from the available capital sources. That may sound counter intuitive but its not if you think about it. From a marketing point of view, you are always taught to work backwards from established market needs and wants instead of forcing something new on the market or guessing at what will make you money.
When business financing for startup capital is involved, you have to work double time and work back from the market and from funding sources.
In reality, there are four scenarios that evolve out of the someone wanting to start a new business. 1) You want to start up a business providing things that not enough people want and there are no sources of financing for that type of business available to you. 2) You want to start up a business providing things that not enough people want, but there is some available sources of financing. 3) You want to start a business that has high customer demand, but no sources of financing. 4) High demand, and money available.
Too many people choose 1, 2, or 3, and get nowhere fast. But even if you do your homework and focus on #4, there is no guarantee of success, but you’ve increased your probability of a profitable outcome just by not swimming against the current.
Bottom line, there is no magical place that provides start up money for any type of start up.
But there is also an infinite sea of money always looking for a home. When you focus on a real market need that you can tap into where there is available money to scale the business, then you’re on the right track.
Securing any type of capital is always about having something to leverage. If you have a great business idea that the market is hungry for or just needs more of what you want to deliver, and you have a solid plan to move forward with, that’s a great start. But take a hard look at potential sources of capital as well that are motivated in some way by what you’re trying to do.
If you can put market demand and money availability together, then you’ve got something to secure capital with.
If you’re looking for more specifics, I don’t have any. Each scenario has its own set of variables (market, individual skills, geography, economy, competition, industry, etc, etc, etc.)
Where to look for start up capital has everything to do with understanding the relevant variables which will help point you in the right direction.
Business Financing