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Financing Your New or Existing business Financing. Whether you are a start-up or need growth capital America has the most robust and open flow of capital in the world, allowing almost anyone who would like to start a business to find the cash to do so. The hard truth is that a lack of capital is most often what prevents a business from succeeding or growing. A successful entrepreneurial company is like a shark in that they need to keep moving (growing) or eventually they will die. According to federal government data in 2003 there were an excess of 7.5 million small businesses (those with fewer than 500 employees) in the US. 80% of these businesses had 10 or fewer employees. These businesses accounted for 99% of all US businesses and employed about 54% of America’s workers. These small businesses generated an impressive 52% of the country’s gross domestic product. Most new jobs in the US are created by businesses with under 500 employees. All of these statistics paint a strong picture for the entrepreneur. Where’s the Money? Every new business needs start-up capital whether it is $6000 to launch a small rental company or $500,000 to open a new family entertainment center or $5M to take a bit of technology to the first stage of commercial development. The truth is the vast majority of new-business owners, like small business owners in general, will never meet a professional venture capitalist (VC) interested in their business. Most entrepreneurs have to look for alternative solutions. The very first thing they need to do is engage in the long and thoughtful process about who they are, what their company is, what their capital needs are and what the best solutions to these needs are – what I like to call ‘low hanging fruit’ – in other words, what capital is the easiest to access with the best return for your effort. You don’t need to spend hours and money developing an award-winning business plan to submit to a VC if you have a friend or family member with $100,000 burning a hole in their pockets. Venture Capital Climate During the early part of the millennium, VC’s were heavily funding start-up and early-stage ventures due to the dotcom revolution. The dotcom became the dot bomb and companies that made heavy bets on venture capital during the dotcom boom spent the last several years licking their wounds. By spring of 2001 less then half as much money was being invested. The reason for this was that they were increasingly forced to hold available funds as reserves to shore up weak companies in which they had made earlier investments which reduced monies for new company investments. The other factor was 9/11. The terrorist attacks against the US in September 2001 changed the psychological climate throughout the business world. Everyone, business owners of large corporations to small operations rethought their priorities, changed their pace and re-balanced their lives with regard to office, home and community. By 2001 financing was beginning to pick up. According to PricewaterhouseCoopers venture capital investing reached its highest level in the second quarter of 2006 ringing in at $6.3 billion. In the second quarter of 2006, venture capitalists invested the highest dollar amount into the most deals since Q1 2002, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial. During the quarter, venture investing grew to $6.3 billion in 856 deals, representing a 2% increase in dollars and a 5% increase in deals from the prior quarter. The increase was driven by strength in the Biotechnology, Industrial/Energy, and Networking & Equipment sectors, all showing solid gains in the quarter. Seed/Early stage deals and Expansion stage dollars both showed solid growth from Q1 2006. And, first-time financings reached a five-year high. Mark Heesen, president of the National Venture Capital Association, said, “It appears as if the venture capital industry is slowly ratcheting up investment levels for the first time in four years, and these increases seem to be directed in a prudent manner. We are encouraged by the upswing in the number of seed and early stage deals – these companies represent the future of our industry. But equally as important is the diversity of the investment dollars into multiple industry sectors. Rather than pouring money into a lot of ‘me-too’ deals, venture capitalists are finding unique opportunities in emerging industries that allow the industry to scale up responsibly.” How did first-time financings do? The number of companies received funding for the first-time in Q2 2006 reached a five-year high with 282 companies receiving $1.3 billion. However, dollars invested in first-time financings declined by 2% suggesting that venture capitalists are placing more but smaller bets in these companies. Companies in the Software, Energy, and Biotech industries attracted the highest level of first-time dollars in Q2. Other industry sectors where venture capitalists placed more bets for the first time were Media/Entertainment, Telecom and Medical Devices. The amusement industry being somewhat of a cousin to the entertainment industry, gives future family entertainment centers a glimmer of hope - especially if you can incorporate a revenue stream that is generated from a live entertainment solution! This series will look at the spectrum of financing opportunities for new or growing businesses from the glamorous options like venture capital and angel money, friends and family members to bootstrap financing such as home equity loans, loans against accounts receivable and credit card financing. It is broken down into five main sections; Equity Investors, Business Partners, Government Funding, Bootstrap Financing and the last section, Doing the Financing Deal. We will begin the first year with the first section, Equity Investors which covers: SECTION I: Equity Investors Entrepreneur Profile & the Equity Investor – Part One * Who You are as an Entrepreneur Friends and Family – Part Two * Who are Friends and Family? Angels – Part Three * Who are Angels? Venture Capitalists – Part Four * Who are Venture Capitalists? Equity-Investor Arrangements Look for your first installment right after the New Year begins! Contact NINJA JUMP INC. 3221 San Fernando Road Los Angeles, CA 90065 Toll Free : 1-800-888-8148 Direct : 1-323-255-5418 Fax : 1-323-255-1312 E-Mail: info@ninjajump.com and visit the website @http://www.ninjajump.com Article 117 Created Dec 01,2006 Author Lisa Gerr Rating 2006-12-04 |
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First Look
for your expansion, financing is a big piece of the picture and one of the most difficult tasks for entrepreneurs. We receive many calls from existing customers and start-up inquiries asking “Where’s the money?” For this reason Ninja Jump is going to run a series of articles in our brand new newsletter department, “Money Matters” on the hot and ever-popular subject of “Financing Your New or Existing Business”. This series will compile information being gathered from the big boys; PricewaterhouseCoopers, Ralph Alterowitz, developer of entrepreneurial curricula for the graduate business programs at The John Hopkins University and Jon Zonderman who is a freelance writer specializing in business. In fact, I am relying heavily on the organization and excerpts from Alterowitz’ and Zonderman’s Entrepreneur Mentor Series book, “Financing Your New or Growing Business: How to Find and Raise Capital for Your Venture” in order to build this series for you.
