04.07.2009 22:19:15

botes

Whether starting a new business or growing an existing venture when it comes to business finance its crucial that you understand the options available to you for funding your business.

Equity based finance is of course not the only option when it comes to raising money for your business. Once you have compiled your business plan, these may be a few other options you can to consider:

Venture Capital

One problem many new businesses face is raising sufficient capital. A business in it's primary phase will also face a difficult challenge getting a bank loan. One alternative is venture capital. Venture capital firms offer capital in exchange for equity in a company. This type of financing is ideal for new businesses since venture capital firms focus mainly on the future prospects of a company when banks use past performance as a primary criteria.

Option 2
Asset Based Financing

Asset based lending has become increasingly popular as a means of financing growth and providing working capital. Asset based financing is a general term whereby a lender accepts as collateral the assets of a company in exchange for a loan. Most asset based loans are financed against accounts receivable and less often, against inventory since receivables are among the most liquid of a company's assets followed by inventory. Receivables are favoured by lenders since they self-liquidate in a short period of time by themselves and are not susceptible to problems such as shrinkage or physical damage. Another type of asset based lending rapidly gaining popularity is factoring. Factoring is defined as the purchasing of a company's accounts receivable on a non-recourse basis. Asset based lending may be the best source of working capital for companies in turnaround where traditional bank loans may not be available or for new and rapidly growing companies where high levels of growth cause the business cycle to outpace the collection of receivables.

Option 3
Long Term Debt

Long term debt is one of the initial financing avenues a company should pursue. Most long term debt takes on the form of a loan where the interest and part of the principal are paid back in equal instalments over the life of the loan. Some of the sources for business loans include the following: commercial banks government sponsored loan programs small business investment companies private lenders

Option 4
Lines of Credit

A line of credit loan is designed to provide short term funds to a company in order to maintain a positive cash flow. Then, as funds are generated later in the business cycle, the loan is repaid. Most commercial banks offer a revolving line of credit, where a fixed amount is available. As funds are used, the "credit line" is reduced and when payments are made, the line is replenished. One advantage of a line of credit is that the no interest is accrued until the funds are withdrawn, but the line is immediately available for the company's cash flow needs.

Option 5
Letters of Credit

A letter of credit is a guarantee from a bank that a specific obligation will be honoured by the bank if the borrower fails to pay. Letters of credit can be useful when dealing with new vendors who may not be assured of a company's credit worthiness. The bank would then offer a letter of credit as an assurance to the vendor of payment. Although no funds are paid by the bank, the credit requirements for a line of credit and a letter of credit are similar.

Option 6
Loan Workouts

A loan workout is the process of repaying a problem loan in a fashion that is most agreeable to the lender and the company. Among the Options involved in a successful workout are maintaining communication with the lender, creating a revised payment schedule, and forming a workout team composed of the company's management, representatives from the lending institution, and legal counsel to manage the process. One of the initial Options in workout proceedings is to recognize that repayment of the loan will not occur. The earlier the company recognizes that a problem exists, the greater their flexibility in dealing with the problem. Financial consultants who specialize in loan workouts are also available to coordinate the efforts of the company and the lender. These consultants can direct the workout team's efforts and suggest solutions to the problem. Floor Planning Although relatively new as a financial instrument, floor planning is another asset based lending approach in which companies can finance their inventories. In floor planning, inventory is financed based on the credit of the vendor as well as the company receiving the financing. The inventory purchased acts as collateral until the sale is made. Small Company Offering Registration Another type of equity financing is a small company offering registration or SCOR. Since the laws governing private sales of securities are somewhat restrictive, SCOR's provide a means of selling common stock to the public. Companies can trade their common stock over the counter rather than deal with the difficulties that initial public offerings face.

In adition to the above organisations such as the Investors Network may be the ideal sollution for an organisation looking to meet with angel investors or venture capital firms.

FAQs | options for funding a business | business funding options

04.07.2009 22:12:55

botes

• family succession
• selling your business
• float your business
• close your business

FAQs | business exit strategy

04.07.2009 21:18:09

Investors Network Team

The term "Business Angel Investor" refers to those individuals who back new entrepreneurial ventures with promising business plans.  They are the largest source of real risk capital in the country and the least understood.  In fact, outside the major financial centers, they are often the only source of risk capital for the entrepreneur.

Business Angel investors are wealthy individuals, often former or current entrepreneurs, who help finance startups in exchange for equity. Although less well-known than venture capital, Business Business Angels invest more in total than VC firms do. The resources available to find Business Business Angels in South Africa include organisations such as the Investors Network industry associations and venture capital seminars. However, the best resources are often your attorney or banker.

The term "Business Angel" was first used in the USA on Broadway to flatter wealthy people who invested in theatrical productions. These days it extends to private investors in businesses that have outgrown credit cards and loans from friends and family as a source of new capital but are still too small to attract professional venture capital.

The informal Business Angel market plugs a gap caused by the very success of professionals. The total amount of money managed by venture-capital funds has grown dramatically in recent years, yet it takes as much time to properly research a small investment as it does a larger one. As a result, the average investment of a venture fund has likewise grown to the level where many venture firms won't even look at a business that needs less than R10 million, even though many ultimately successful high-tech businesses start out at this scale.

The biggest trend in the Business Angel world is the creation of formal networks. Business Angel investing has historically been a costly, hit-or-miss affair, with personal connections and introductions being the primary way that investors and entrepreneurs match up.

Business Business Angels are wealthy individuals who will write you a personal check, ranging anywhere from R20,000 to R1 million, to help finance your company. There are many flavors of Business Business Angels, from the retired dentist hoping to impress his golfing buddies by getting in on the seed round of the next eBay to the former CEO who wants to stay in the game (if not up until 2 a.m.) by helping startups grow.

At some point you likely will raise money from a large venture capital firm, but it won't be the first financing you receive. Most VC firms today won't make investments less than R10 million to R15 million. Yet virtually every Net company needs to raise a seed round of a few hundred thousand Rands to allow the founders to quit their day jobs, create the skeleton of the company, incorporate, build a prototype Website, file for necessary patents, and so on. Taking less initially lets you build the value of your company and lets you give less of it to the big VC fund when you eventually raise that R50 million round.

FAQs | business angels | what are business angels

04.07.2009 21:03:35

Investors Network Team

It is important that you are prepared for every meeting with a potential investor. When provided with the opportunity to pitch to angel investors (and Venture Capitalists!) remember your immediate goal: The purpose of your initial pitch, and your pitch document, is to get them to pick up the phone and schedule a more extensive conversation-not to get them to invest. Keep your business plans to yourself until they are explicitly requested. What you need first is a short marketing document that highlights the problem, your solution, how much money you stand to make, and why you're the team that is going to make it happen. Highlight the most intriguing aspects of your company (Unusually strong team? A killer patent position?) and avoid clouding your message with spurious detail.

The size of the angel investment you can expect depends on who you are and where you are on the value staircase-are you still in graduate school and just have an idea, or are you the soon to be ex-director of marketing at a successful start-up? Do you have a product? Do you have revenue? The answers to these question can affect the value of your company, but don't get hung up on negotiating price with angels. All serious angels know about the value staircase, and they know that eventually it will be appropriate for you to raise R10 million from a VC firm. So early financing rounds must be at a cheaper price.

The range for an early-stage investment is almost always less than R10 million, and a seed investment is often in the low single millions. It is reasonable to give an angel 20 percent of your company in the first round, but remember that these first initial investors will be diluted substantially in subsequent rounds. By the time of your IPO, their stake may be only a few percentage points.

Special investor rights are commonplace in early stage deals and this is where getting a good lawyer pays off in spades. The key point, however, is to negotiate with your investors in a spirit of partnership. Just like your first employees are often quasi-founders, your first investors deserve a special place. Don't try to negotiate with an angel the way you would with a VC. Similarly, don't waste a lot of time with an angel who thinks his R50,000 is all the money you'll ever need .

Smart angels are often less concerned with valuation and more interested in how the entrepreneur conducts himself or herself. Is she headstrong and strident or reasonable and flexible? Similarly, if your angel rubs you the wrong way during the negotiation, perhaps you should get a financial backer you relate to better. Remember that the tough times may be still to come. Once the angel writes you a check, you're married to him or her for the life of your venture.

FAQs | preparing to face investors

04.07.2009 20:24:17

Investors Network Team

Yes, don’t worry, you and anyone else can follow the guidance and coaching of our investment facilitation services. We go to great lengths to make sure that you have all the tools to your availability when speaking to investors. All of our assistance is clear, simple and straightforward.

The mentoring process is also extremely helpful to those who do have experience raising capital. Specifically, you can benefit from our vast experience, depth of resources, industry connections, due diligence services and unlimited accredited angel/private investor leads. We are also constantly adding more resources to the website that even the experienced capital raising entrepreneur can use to raise more capital and succeed faster. In addition you can also of course take part in our regular workshops and seminars where we help you to become investment ready.

FAQs

04.07.2009 20:12:38

Investors Network Team

No. It is of course against the law in South Africa for anyone or any company to guarantee funding. If someone says so, run as far as you can. What we do guarantee is that your materials will be screened against our extensive network of financing sources in order to uncover financiers currently funding businesses within your sector, at your stage of development, and within your geography.

We aim to present your opportunity to a highly targeted group of active investors. Investors Network is a community where we facilitate the introductions of the entrepreneurs and investors. You will see from our pricing structure that us as a business of course benefits from you finding the investment you are looking for, so in a sense you can say that your success is also our success. We can not guarantee that you will be successful but if there is anything we can do to support you in this process, please let us know.

FAQs | Am I guaranteed of an investor? sup