What is your financing strategy?

Discussions About Financing Strategy

Is your company “really” investor ready? Do you know how to market and sell to outside investors? Do you have a sound financing strategy? Here is what Anita Roddick, founder of The Body Shop, once said: “There are only two ways of raising money: the hard way and the very hard way.”

The world of venture capitalism has its own language, its own process, and its own methods of communication between entrepreneurs and potential investors. All entrepreneurs must go through the formal venture drill when raising money from outside investors.

The three steps to the drill are packaging, placing, and presenting. Packaging is researching and writing an effective business plan. Placing is skillfully introducing the opportunity before the best investors. Presenting is communicating and making the deal happen in a formal meeting at the investors’ closing table.

Funding is the oxygen that fuels a fast-growing business, but understanding the capital sources, potential capital structures, and creating a financing strategy can be confusing and overwhelming. The key is to understand your financing options, understand your alternatives, and create a financing strategy that best matches your situation. No matter what your financing needs, you will need to determine and implement the right financing strategy to fuel growth and profitability. How much money do you need? When do you need it? How do you value your venture and structure a “good” deal? Who are the best investors for your deal? And what are your financing alternatives? A concise financing strategy threads these important elements together.

You need to have a sense of your financing strategy before you complete the business plan, but you don’t actually start to seek financing until we have your business plan complete. In fact, your business plan communicates not only your vision and business strategy but should also complete and support your financing strategy. You need to be prepared and take the necessary steps to ensure that you get the capital you need to fund your growth strategy, when you need it, and most importantly on terms that do not sacrifice your future upside.

So, once we have a completed the business plan, we can proceed to help you place your business plan and arrange for introductions to one or more of the following:

Angel investors
We will target wealthy individuals, often from the same or related industries. The financing structuring usually involves subordinated debt with warrants or straight equity as well as a board seat. Typical investment size is $100,000 up to $1,000,000.

Financial investors
These investors include Small Business Investment Companies, (SBICs), which are chartered by the U.S. Small Business Administration, to fund entrepreneurs. Other investors include institutional investors and venture capital funds. Deal structure is usually equity or subordinated debt. Typical investment size is $l to $10 million.

Strategic investors
This includes larger companies, often public, from the same or related industries. Investment structure may include equity, subordinated debt, joint venture, development, and licensing or royalty agreements. Transaction size is generally $500,000 to $10,000,000.

Banks, Commercial Finance Companies and Asset Based Lenders
These investments usually take the form of senior debt with a possible UCC-1 on assets of the company. The investment size can run from $500,000 to $20,000,000+.

SOURCE: Roadmap To Entrepreneurial Success