Raising Capital - Assessing the Options

Over the last several years, raising capital has become somewhat more difficult, yet not much so for viable ventures with a high quality and transparent business plan। The expectations of investors and lenders from Venture Capitalists (VC) to Angel Investors to Banks to SBA has not changed substantially, but they are all more selective. When money flowed in the go go 90's or the dot.com boom, there were plenty of success stories from business ideas that were funded from a scratch pad or napkin. Do plans get funded from an elevator pitch, let alone a summary today? Sure they do...when the principal(s) have great track records (such as built and profitably sold a few companies) and/or a clearly new technology or application is involved.

VC have hundreds of projects presented to them monthly। We have a our own proprietary data base of 750 or so VC firms, researched and sorted by the type of projects funded and what stage। There are some common themes with VC, including a preference for technology centered business plans in unique markets with very limited competition। During the dot.com boom, if you had competition but developed a better mouse trap, you may well be funded. That is very rarely true today.

So many entrepreneurs get excited when a VC firm expresses interest, but that is part of the process in their looking at so many ventures to fund a select few। As an example or how competition is viewed and a VC process may work, we gained interest from a dozen VC for a client with an online advertising application, a better mouse trap in a competitive space. They took an angel investor's money and developed the application (VC will almost always not do this) 2-3 years ago, and then trended revenues up about 2M last year although several competitors far surpassed that amount and their trend would surely continue based on many new clients. While a dozen VC expressed interest, with many follow up conference calls, the competitors in an ever evolving market place did not result in a VC commitment. The silver lining is they did except a Phase II raise for another angel.

There are perhaps over a thousand angel networks nationwide, some local or regional like a couple large groups in southern California, or many national, some where we have premium access। Angels think much like a VC, usually see less projects, invest in earlier stages, take greater risks and are less competitor wary। Angels do come in many forms from those that have invested in many projects and join many networks to be found to those that invest locally that you have to seek out. Angels are almost always the best equity option when compared to VC, particularly in their interest in a diversity of investments and the willingness to invest in early stage companies.

What is an early stage company? It is not a start up or a company that is launching without revenues, but a company that has revenues and has proven its business model yet has only scratched the surface of earned revenues and primarily needs operating and marketing dollars to get the next level, perhaps from low to mid six level income to seven figures। Start ups can attract angel capital as well, but expectations must be adjusted, almost always a phased investment tied to revenue benchmarks।

Of course VC and angels involved mean you are giving up an equity stake in your company। You do get the benefit of sage advice and you do typically not incur debt। On the flip side, in the long term, most entrepreneurs are better off with obtaining solid marketing and business development input within and separate of a custom high quality business plan and obtaining debt if qualified. SBA and SBAExpress are options we always suggest for consideration for early stage companies. When completing a business plan, and to a degree beforehand, we conduct due diligence like a VC, angel or SBA lender all rolled into one to assess the options and develop a plan that has varied capital options to the extent a business at its stake of development can qualify. Armed with a quality business plan, we can help raise the needed capital to expand businesses in a myriad of markets.