Raising Capital For Dummies E-Book

Joseph W. Bartlett

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 512

Veröffentlichungsjahr: 2011

Beschreibung

While raising capital has never been easy, it has become a lot more difficult over the past few years. The dot-com debacle has made investors skittish, especially when it comes to financing early-stage start-ups. As a result, more and more entrepreneurs are being forced to compete harder and harder for a spot around the money well. At the end of the day, all most have to show for their efforts are tattered Rolodexes and battered egos. What they need is the competitive edge that comes with having a friend in the business-an advisor who'll cut through the mumbo-jumbo and tell them in plain English how to get the money they need. What they need is Raising Capital For Dummies. Whether you're just starting your business and need a little seed capital to launch your first product, or you're looking for a little help expanding an established business into a new market, this friendly guide helps you get the financing you need to realize your dreams. You'll discover how to: * Tap personal sources of financing, as well as family and friends * Approach customers and vendors for financing * Hook up with commercial lenders * Find angel investors * Get an SBA loan * Raise cash through private equity offerings * Woo and win investment bankers and venture capitalists Venture capital guru, Joseph Bartlett explains in plain English the capital-raising strategies and techniques used by some of today's most successful businesses, including tried-and-true methods for: * Assessing your financial needs and creating a solid financial plan * Researching sources of financing and making first contact * Finding, contacting, and convincing angels * Getting your customers to finance your company * Understanding and exploiting matching services * Exploring commercial banks, savings institutions, credit unions, finance companies, and the SBA * Qualifying for a loan * Working with placement agents * Raising cash through IPOs and mergers From raising seed capital and funds for expansion to IPOs and acquisitions, Raising Capital For Dummies shows you how to get the money you need to survive and thrive in today's winner-take-all marketplace.

Leseprobe

Raising Capital For Dummies®

by Joseph W. Bartlett and Peter Economy

Raising Capital For Dummies®

Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2002 by Wiley Publishing, Inc., Indianapolis, Indiana

Published by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Printed in the United States of America

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About the Authors

Joseph Bartlett: Mr. Bartlett is a partner at the New York law firm of Morrison & Foerster, LLP. He is an adjunct professor at New York University School of Law and an expert in (among other things) venture capital. He has published numerous articles and books, including three textbooks about venture capital: Fundamentals of Venture Capital, (Aspen, 2000); Equity Finance: Venture Capital, Buyouts, Restructurings and Reorganizations, (Aspen 1995, Supps. 1996-1999); Corporate Restructurings: Reorganizations and Buyouts, (Wiley 1991; Supps. 1992, 1993); Venture Capital: Law, Business Strategies and Investment Planning, (Wiley 1989; Supps. 1990-1994). He also authored The Law Business: A Tired Monopoly (Rothman, 1982).

A former undersecretary of commerce, law clerk to Chief Justice Earl Warren and president of the Boston Bar Association, Mr. Bartlett graduated from Stanford Law School, where he was president of the Law Review. He’s been an acting professor of law at Stanford and an instructor in law at Boston University Law School. He’s been profiled in trade publications as one of the leading practitioners in venture capital nationwide and served as counsel, director, and shareholder, with a number of development-stage companies during his 35 years in the venture capital business. Mr. Bartlett is a member of the Council on Foreign Relations, the board of trustees and executive committee of Montefiore Medical Center, and director of Simon Holdings. Mr. Bartlett is admitted to the bar in New York, Massachusetts, and Washington, D.C. (www.vcexperts.com)

Peter Economy: Mr. Economy is associate editor of the Drucker Foundation’s award-winning magazine, Leader to Leader, and coauthor of The Complete MBA For Dummies with Kathleen Allen, Home-Based Business For Dummies with Paul and Sarah Edwards, Managing For Dummies and Consulting For Dummies with Bob Nelson, Leadership Ensemble: Lessons in Collaborative Management from the World’s Only Conductorless Orchestra, with Harvey Seifter, Enterprising Nonprofits: A Toolkit for Social Entrepreneurs with Greg Dees and Jed Emerson, and At the Helm: Business Lessons for Navigating Rough Waters with Peter Isler (coauthor of Sailing For Dummies). Peter combines his writing experience with more than 15 years of hands-on management experience. He received his bachelor’s degree in economics from Stanford University and is pursuing his MBA at the Edinburgh Business School. (www.petereconomy.com)

Dedication

To the intrepid entrepreneurs and businesspeople everywhere who take risks and drive our economy to new heights.

Acknowledgments

We’d like to give our sincere thanks and appreciation to our talented publishing team at Wiley, particularly Mark Butler, Marcia Johnson, Pam Mourouzis, and E. Neil Johnson. We’d also like to thank Pat Boyce, the people at VC Experts, including Ross Barrett, Rich Chinitz and Umut Kolcuoglu, for their help in putting these materials together, Jeffrey Marcus, Bruce Elwood Johnson, Mark Joachim, and Joe’s partners and associates at Morrison & Foerster for their technical expertise and contributions, and a very specific and heartfelt thanks to Joe’s special assistant, Joan Taylor, for her help in organizing the material.

A special thanks to John Hempill, partner in the Morrison & Foerster, New York office, specializing in corporate finance transactions, for his excellent comments on Chapters 10 and 15. Mr. Hempill has been counsel to issuers, underwriters, and selling shareholders in public offerings, including initial public offerings of new media and Internet-related companies. Mr. Hempill has experience in acquisitions for public and private companies in a variety of industries.

Publisher’s Acknowledgments

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Contents

Title

Introduction

About This Book

Foolish Assumptions

How This Book Is Organized

Icons Used in This Book

Where to Go from Here

Part I : First-Stage Financing: Seed Capital and Start-up

Chapter 1: It Takes Money to Make Money

Got Cash? Figuring Out How Much Money You Need

Getting Your Financial Ducks in a Row

Debt or Equity Financing: That Is the Question

Bootstrapping

Chapter 2: Tapping into Your Personal Resources

Taking a Dip (into Your Savings)

Credit Cards: Not Just for Breakfast Anymore

Turning Your Home into an ATM

There’s Gold in That Retirement Fund

Chapter 3: The Rolodex Round: Family and Friends

Pounding That Rolodex

Understanding What Goes into the Exchange

Making Your Pitch

Keeping It Fair and Legal

Sample Buy-Sell Agreement

Chapter 4: Angel Investors

Angels: Getting to Know You

A Who’s Who of Angels

The Outer Limits of Angel Deals

What You Can Expect from Your Friendly, Local Angel

The 411 on Angels: Where to Find Them

Chapter 5: Customers and Vendors

The Ins and Outs of Trade Credit

Vendor/lenders: The Joys of Financial Incentives

Getting Your Customers to Finance Your Company

Barter: Who Needs Money?

Chapter 6: Matching Services

Understanding How Matching Services Work

The Tried and True: Offline Matchmaking Services

The Internet to the Rescue?

Looking into the Future

Part II : Second-Stage Financing: Expansion

Chapter 7: Commercial Lenders

A Loan for Every Occasion

Doctor Livingstone, I Presume? Exploring Sources of Loans

Qualifying for a Loan

Eight Steps to Getting the Loan You Want

Chapter 8: Placement Agents

A Who’s Who of Placement Agents

Understanding the Role of Placement Agents

Decisions, Decisions: Do You Need a Placement Agent?

Fees: Coughing Up the Cash

Due Diligence: Avoiding Rip-Offs and Failures

Sample Agency Agreement

Chapter 9: The Small Business Administration

Choose One from Column A and One from Column B: Exploring SBA Loan Programs

Maybe Yes, Maybe No: Understanding SBA Requirements

Be Prepared: Applying for an SBA Loan

And Don’t Forget Small Business Investment Corporations (SBICs)

Chapter 10: Private Equity Offerings

Exploring the Regulation D Exemption

The Big Blue Sky: State Regulation

Creating a Winning Private-placement Memorandum

Chapter 11: Venture Capital

Back to the Basics: Venture Capital

Understanding VC Lingo

Taking a Closer Look at How VCs Work

Landing a VC

Chapter 12: Valuation

Talkin’ the Valuation Talk (and Walkin’ the Valuation Walk)

Putting Different Valuation Methods to Work

Discounted Cash Flow — The Basics

Forecasting Five Years Out: Experienced Hockey Players Are Wary of High Sticks

Chapter 13: Lease Financing

Introducing the Basics of Lease Financing

Some Good Things about Lease Financing

Some Not-So-Good Things about Lease Financing

Making the Lease-Buy Decision

Lease Financing — Where to Look

Part III : Third-Stage Financing: Acquisition

Chapter 14: Investment Banks

What Investment Bankers Do to Earn Those Big Bucks

Your Money Is Safe — Probably

Gaining Access to an Investment Bank

Chapter 15: Initial Public Offering (IPO)

The ABCs of IPOs

Deciding Whether an IPO Is Right for You

Preparing for an IPO: A Step-by-Step Guide

The Road Show Never Ends

Chapter 16: Mergers

Defining What a Merger Is

Exercising Appraisal Rights in Forced Merger

Selling Less than All the Assets: Do Shareholders Have a Vote?

Equitable Constraints in Corporate Reorganizations: Mergers

Closing the Deal

Part IV : The Part of Tens

Chapter 17: Ten Best Sources of Fast Cash

Borrowing from Family and Friends

Utilizing Credit Cards

Taking Out a Home-equity Loan

Considering an Uncollateralized Personal Loan

Refinancing a First Mortgage

Selling Some Assets

Borrowing Against a Life Insurance Policy

Factoring Your Receivables

Borrowing Against 401(k)

Playing the Lottery

Chapter 18: Ten Creative Ways to Raise Capital

Getting Advance Payment from Customers

Extending Your Payables

Swapping Stock for Payables

Seeking Assistance from State, Regional, and Federal Programs

Establishing Strategic Alliances

Exploring Investment Partnerships

Setting Your Sights Offshore

Finding the Right Placement Agent

Networking at Industry Conferences

Hooking Up with Angel Investors

Chapter 19: Ten Steps to Improve Your Cash Flow — Now!

Requiring Payment Immediately (If Not Sooner!)

Don’t Pay Bills Any Sooner than You Have To

Invoicing Frequently

Encouraging Fast Payment with Discounts

Budget Your Cash

Managing Your Expenses Rather than Letting Them Manage You

Keeping on Top of Your Accounts Receivable

Encouraging Your Customers to Use Credit Cards

Making Sure That Your Invoices Are Right the First Time

Invoicing upon Delivery

Bonus Step 11! Great Cash Flow Strategies

Glossary

Introduction

C apital — specifically capital in the form of cash — is the lifeblood of any business. New businesses need capital to pay the deposits required to rent office or manufacturing space and to pay newly hired employees, and established businesses need capital to grow, to develop new products and services, and to provide a return to shareholders. Not only that, but owners who’ve risked their own personal capital to create successful and thriving businesses understandably want to be rewarded, naturally, in the form of cash for their many years of hard work and perseverance.

And if you’ve been in business for any time at all, you’ll know that money truly doesn’t grow on trees. Raising capital is no easy task, and it’s a task that once started, is never ending. While a million-dollar line of credit with your bank may be sufficient for your needs this year, next year you may need twice that amount. You can never have too much cash and, more often than not, you probably won’t have as much as you’d like.

As you browse through this book, keep one thing in mind: An ultimate best way to raise capital for your business doesn’t exist. Indeed, you’ll soon discover many, many different ways to raise capital, and the ultimate success of each approach for your business depends on a variety of factors, including the nature of your business, total annual revenues, profitability, credit history, your industry, the ability of founders and top executives to create a compelling opportunity for potential investors, and much more. Most successful businesses take a variety of different approaches to raising capital, and they fulfill their needs from more than one source.

This book provides you with the best ideas, concepts, and tools for raising capital — from the tried-and-true to the cutting edge. Apply them, and we’re sure that you’ll see a noticeable difference in your everyday business dealings — a difference that will make you and your business partners even more successful than you already are.

About This Book

Raising Capital For Dummies is full of useful information and tips that can be used by anyone hoping to raise the money that his or her business needs to grow and thrive. Your current level of financial experience (or lack thereof) doesn’t matter. You won’t have to have a master’s degree in finance, or be a certified public accountant, or even have a rich aunt or uncle to help you out — although that wouldn’t be such a bad thing. We’ll provide you with an easy-to-understand road map to today’s more effective techniques and strategies for raising capital for your business.

The good news is that the information you’ll find within the covers of this book is firmly grounded in the real world. This book is not an abstract collection of theoretical mumbo-jumbo that sounds good but doesn’t work when you put it to the test. No, we have culled the best information, the best strategies, and the best techniques — the same ones used in today’s more successful businesses. This book is a toolbox full of solutions to all your financial questions and problems — all you have to do is put it to work!

And although Raising Capital For Dummies is overflowing with useful advice and information, it is presented in a fun, easy-to-access format:

First, this book is a guide to everything that you can possibly need to know about raising capital for your business — whether you’re just starting your business and looking for seed capital to launch your first product, or your business is well established and you need a shot in the arm to fund a major expansion into a foreign market. What? You’ve never had to figure out an internal rate of return or net present value before? No problem. We’ll show you how. Whatever your question may be, chances are we’ve already answered it somewhere between these bright yellow covers.

Second, this book is easy to access. What good is all the information in the world if you can’t get to it quickly and easily? Have no fear. This book is designed with you, the reader, in mind. Here’s how to get to the precise information you seek:

If you want to find out about a specific area, such as how to find angel investors, or how to get a Small Business Administration (SBA) loan, or what investment bankers can (or can’t) do for your business, you can check out the table of contents or the index and quickly flip to the section that covers the answers you’re looking for. Faster than you can say “The check’s in the mail,” you’ll have your answer.

If you want a crash course in raising capital, read this book cover-to-cover. Forget spending lots of money getting your MBA. Forget learning by trial and error. Forget spending countless nights poring over some fly-by-night correspondence course. Everything you need to know about raising capital is right here. We mean it.

Third, this book is fun, which reflects our strong belief and experience that raising capital doesn’t have to be boring. In fact, it can be a great deal of fun. We’ll even help you to maintain a sense of humor in the face of the challenges that allbusinesspeople face from time to time. That doesn’t mean you won’t face days when you’ll be challenged, but it also doesn’t mean you’ll face many more days when the satisfaction of landing a big, new source of cash, or tracking down the ideal merger candidate brings you a sense of fulfillment that you never imagined possible.

When your business is a new one, raising capital can be a nerve-wracking proposition, at least until you develop steady streams of revenue and a track record of success. Remember that for even the most successful, well-established businesses, raising capital occasionally can be a hairy experience. Don’t worry. Relax. Help is at your fingertips.

And the book is chock-full of our own personal Internet bookmarks for accessing the best business finance resources the Web has to offer. You’ll find no filler here — just practical solutions to everyday problems.

Foolish Assumptions

As we wrote this book, we made a few assumptions about you, our readers. For example, we assumed that you’re truly motivated to discover some new approaches for raising capital for your business, and that you’ll be willing to put these new approaches to work for you. We also assumed that you’re willing to take the kinds of measured risks that result in greater rewards and financial returns for your business, and, finally, we assumed that you’re ready, willing, and able to make a long-term commitment to raising capital for your business.

How This Book Is Organized

Raising Capital For Dummies is organized into four parts. The chapters within each part cover specific topics in detail. Because we have organized the book this way, it’s simple, quick and easy to find the topic that you’re looking for. Simply look up your general area of interest, and then find the chapter that concerns your particular needs. Whatever the topic, you can bet that it’s covered someplace!

Each part addresses a major area of the hows, whats, and whys of raising capital. Here are summaries of what you’ll find in each part:

Part I: First-Stage Financing: Seed Capital and Start-up

The capital needs of start-up businesses are unique, and so are their potential sources of capital. Because start-ups have little or no track record of success, the chance of their being able to attract investments of capital from banks or venture capitalists is far less than businesses with more mileage under their belts. In this part, we look at what it takes to make money, including tapping into personal sources of financing and family and friends. We also consider angel investors and how to approach customers and vendors for financing. Finally, we take a look at the topic of matching services.

Part II: Second-Stage Financing: Expansion

For established businesses that are well past the start-up stage, have established a track record of success, and are looking for capital to finance further growth and expansion, second-stage financing provides many more sources of capital from which to draw. Not only that, but such businesses can command much larger amounts of capital than start-ups looking for first-stage financing. In this part, we explore commercial lenders and placement agents, and the Small Business Administration — a major source of loans and loan guarantees to small businesses. We also consider the oft-overlooked topic of private equity offerings along with the ever-popular topics of venture capital and valuation.

Part III: Third-Stage Financing: Acquisition

When a company’s owners have something more in mind than starting or growing their businesses, they want to cash out and to have the opportunity to enjoy the fruits of their labors. That means they must find someone to buy the business, either in part or as a whole. In this part, we explore investment banking, initial public offerings, and mergers — finding out how they can provide the kind of cash that every owner dreams about.

Part IV: The Part of Tens

Here, in a concise and lively set of condensed chapters, you’ll find tips that help you quickly raise the capital that your business needs. We’ll show you how to avoid those common mistakes that managers make, the best ways to market your products and services, how to improve your cash flow, and much more.

Icons Used in This Book

This icon highlights pointers and processes that will improve your ability to raise capital.

Remembering these nuances of raising capital are intended to help you find, cultivate, and secure sources of funding for your business.

If you don’t pay close attention to the advice next to these icons, you wind up paying through the nose.

Although you don’t necessarily need to read what’s marked with this kind of icon, doing so is a way to gain a better understanding of some of the technical background behind a particular aspect of raising capital.

Where to Go from Here

If you’re new to the business of raising capital — perhaps a new entrepreneur, owner, or manager — then you may want to start at the beginning of this book and work your way through to the end. A wealth of information and practical advice awaits you. Simply turn the page and you’re on your way!

If you already have plenty of financial experience under your belt, and you’re short of time (and what businessperson isn’t short of time?), then you may want to turn to a particular topic to address a specific need or question. If that’s the case, then look in the Table of Contents for a chapter-by-chapter description of all the topics in this book.

Regardless of what course you take through Raising Capital For Dummies, we’re sure that you’ll enjoy getting there. Please keep one thing in mind: Some material appearing throughout the text about the law and regulations typically are summaries of technical, intricate, and complex concepts and rules that should not be construed as legal advice. Therefore, consulting experienced legal counsel for help may be vital when dealing with these issues.

If you have any specific questions or comments, we’d love to hear from you. Please visit Joe Bartlett at his Web site: www.vcexperts.com or Peter Economy at his Web site: www.petereconomy.com.

Part I

First-Stage Financing: Seed Capital and Start-up

In this part . . .

We consider the fundamental question of raising capital: Should I consider equity financing, debt financing, or some combination of both? We cover the basics of raising capital for businesses that are in their early stages of growth, including using personal resources, tapping family and friends, finding angel investors, leveraging customers and vendors for your financing needs, and more.

Chapter 1

It Takes Money to Make Money

In This Chapter

Determining your financial needs

Understanding the difference between debt and equity financing

Introducing bootstrapping

T hat old familiar saying states: “It takes money to make money.” Ask any business founder, entrepreneur, or top executive, and chances are that he or she will tell you that statement isn’t just a quaint old saying; it’s a fundamental truth of doing business today.

No business can operate without the money necessary to pay employees and vendors, and internal sources of cash aren’t always enough to keep a business going — especially for start-ups and fast-growing companies that tend to suck up cash far faster than it comes in from sales of company products and services. Sure, all the money in the world isn’t always enough to ensure business success — creating a successful business requires hard work, great ideas, dedicated and talented employees, and more than a little bit of luck — but at some point every business needs to raise capital to survive and to thrive.