Formal Venture Capital is not the only way to finance your
venture. Although the following methods are not commonly known,
they are legitimate and effective ways to obtain business
capital. Consider these scenarios:
ALLOWANCES FROM LANDLORDS
Banks will often
allow you to count buildout allowances as capital (unless it has to be repaid)
in your source and use of funds statement. While the money comes in and goes
out, it does increase the overall cash flow and size of your deal.
writer recently counted $450,000 buildout allowance of a $1.5 million deal as
equity, when obtaining a $350,000 loan for a client. The other $750,000 came
from the founders and investors. By counting the buildout allowance as equity,
the debt to equity ratios were much higher.
Capital can often
be raised from outside companies with a vested interest in developing either
distribution channels, or assuring themselves of adequate product flow from
invested in his supplier in order to assure himself adequate inventory.
An oil company
franchisor provided startup capital for a client when asked. Although
treated as a long term loan by the oil company (it only had to be paid back
if the company didn't reach its distribution quotas), it was a capital
infusion from the bank's standpoint.
ASSOCIATED with the BUSINESS
architects, accountants, lawyers and other suppliers can also be also be
arranged. Just present a way for investors to be more profitable in their own
companies through the proposed investment.
Today, law firms,
advertising agencies, executive recruiters and professional consultants will
often accept partial payment in stock, warrants or options in return for
services. This is an excellent way to build a powerful team of professionals
with a vested interest in your success and your success in raising capital.
Many of these
professionals are also angel investors, who can champion your cause with other
private investors. Do not make the mistake, however, of assuming that you will
get both and investment and discounted services from the same group. They will
generally risk either their time or their money, but not both with your company.
If you are a
retailer with poor credit, and cannot get merchandise shipped without a direct
payment, have someone with better credit buy the products and resell them to
you. You may pay a premium (3% - 6% per order), but the White Knight will
collect a few percentage points each month. If you have a high turnover ratio,
it will allow you to reestablish cash flow and credit. Only a few specialists
handle these types of operations, but you can find them through factoring
are willing to reduce their fees in exchange for equity. This method is used as
part of a corporate strategy to acquire equity in a large number of companies.
Although the services will not be totally free, they will usually reduced by
about 50%. You may even be able to arrange options or warrants to avoid initial
dilution. Plus, you can provide the professional with an exit strategy prior to
an IPO, if another large investor enters your market.
SELL LICENSES or
Selling off rights
to foreign or geographic markets, or private labeling products, is an excellent
vehicle for young companies. You can use both exclusive and non-exclusive
arrangements. All methods should have some type of quota and non-compete
clauses. The downside is that later investors may feel that you have sold off
too much of the potential, so they will not invest as readily.
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