Options for Financing Your Company in 2012- part 2

by | May 14, 2012

Our guest blog comes from Michelle Goerdel, President, Biz Loan Link.


This is continued from last weeks post on options for financing your company.

6)      Angel investors generally use their funds to invest in very early stage companies that are just starting to produce revenue or may not even be at the revenue stage yet. Investors pay a very low price per share and tend to invest only in companies where the return is well over 10x their initial investment, as this is the highest risk investing one can do. The dollar amounts invested can be very low- often these can be friends and family at the low end of the investment range- to a couple million. These are usually individuals or small groups of investors.

7)      Venture Capital Groups are the next stage, although they can be fairly early in the revenue phase, the company is generally still not cash flow positive. These are usually groups of investors that pool their funds into partnerships that then spread those funds over several investments.  Investments here tend to be a minimum of $5 million versus $25,000 for the angel investors (I’ve even seen $5,000 for one investment option.)

8)      Equity Partners make up two groups:  those that do recapitalization without a majority interest and those that take over the majority of the company. There are two distinct subgroups- those that work with small companies and those that work with mid to large companies. The difference is generally that the former is in the less than $5 million range for investment while the latter is usually $10 million or more (mostly a lot more.) Equity investors include both local and international investors (through the EB-5 program for example.)

9)      There are fairly recent options that have come (or are coming) into play. Internet Lending firms such as Kickstarter and Indigogo are internet websites that will help with specific types of funding, generally small amounts but sometimes more than $100,000. A company puts their business plan and request on these websites and individuals can lend whatever amount they want to the company. There are certain restrictions such as when the company can access the money (some will only release the funds once the entire amount has been raised, others release funds after a certain percentage has been raised.)

10)      The newest option- called Crowdfunding– that will be entering the market over the next nine months is similar to the internet lending firms but raise equity instead of debt. These will be internet sites that help companies market their equity request, collect the funds for distribution to the company and ensure education for non-accredited investors. There are still many rules to be put in place- the SEC has 270 days to get them out- but we will be hearing a lot about this new and intriguing option for funding throughout 2012. It has the opportunity to redefine how we do equity funding or to be a terrible mistake depending upon who is talking but either way it will be one of the big topics of conversation over the coming year.