Raising Capital
Most small businesses cite lack of capital is a major constraint on growth. Raising Capital focuses on non-bank sources of capital since banks only lend to companies that fit a very narrow profile. The topics covered include: (i) capital sources entrepren
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RAISING CAPITAL
RAISING CAPITAL
by
DAVID E. VANCE Rutgers University School of Business, Camden, NJ, USA
Library of Congress Cataloging-in-Publication Data A C.I.P. Catalogue record for this book is available from the Library of Congress. ISBN-10: 0-387-25319-X free paper. ISBN-13: 978-0387-25319-0
e-ISBN-10: 0-387-25320-3
Printed on acid-
e-ISBN-13: 978-0387-25320-6
© 2005 Springer Science+Business Media, Inc. All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, Inc., 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now know or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks and similar terms, even if the are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed in the United States of America. 9 8 7 6 5 4 3 2 1 springeronline.com
SPIN 11378457
CONTENTS
Chapter 1
RISK, REWARD, SIZE AND TIME TO EXIT
Introduction 1 Understand Your Needs 2 What Is Capital? 4 Typical Sources of Capital 4 Risk, Reward, Transaction Size and Time 7 Risk Factors: Stages in a Company's Life Cycle 8 Factors Bearing on Reward 11 Transaction Size 12 Time to Exit 12
Chapter 2
SELF-HELP, THE ENTREPRENEUR'S SOURCES
Introduction 17 Self-Reliance 17 How Much Capital is Necessary? 18 Seven Strategies to Get Start-up Capital 19
Chapter 3
BANKS
Introductions 33 The Banker State of Mind 33 Bank Facilities 34 Underwriting 37 Quality of Financial Data 44 Bank Covenants, Terms and Conditions 45 Myth and Mythology 47 Are Banks Reliable Partners? 48 Bank Debt Is Good 49
Contents
vi
Chapter 4
SMALL BUSINESS ADMINISTRATION
Introduction 55 Overview 55 Eligibility 56 Mechanics 57 Underwriting 58 Collateral 58 Personal Guarantees 59 Documentation 59 Loan Covenants 6 1 Loan Programs 6 1
Chapter 5
ASSET BASED LENDERS AND FACTORS
Introduction 69 Traditional Asset Based Lenders 69 Specialized Asset Based Lenders 7 1 Tranche B Lenders 7 1 Sale & Leaseback 74 Note Discounters 77 Factors 79
Chapter 6
BUSINESS MODELS, BUSINESS PLANS
Introduction 89 Why Is Capital Needed? 90 How Much Capital Is Needed? 92 Risks of Underestimating or Overestimating the Capital Needed 94 Market Assessment 94 Business Model 99 Marketing Plan 105 People to Execute the Plan 106
Chapter 7
ANGEL INVESTORS
Introduction 111 What is an Angel Investor? 111 Angels Go Where Others Fear to Tread 112 What is the Profile of an Angel? 113
Contents
vii
Angel Investment Criteria 114 What Rate of Return Do Angels Want? 122 Due Diligence 122 Angel Investor Advice 123 Where Are Angels Found? 125
Chapter 8
VENTURE CAPITAL
Introduction 139 Risk versus Reward 140 Who Needs Venture Capital? 141 Scop
