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Posts Tagged ‘Raising Capital’

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Angel Investments Are On the Rise

April 26th, 2012 ::

By Karen Axelton

It’s not surprising that the size and number of angel investments shrunk considerably in 2008 and 2009 after the economy crashed. But in 2010, and upward trend began, and in 2011, the growth continued, according to the Center for Venture Research at the University of New Hampshire.

The CVR’s just-released Full Year 2011 Analysis of Angel Market Trends has encouraging news: Angels are more optimistic, have significantly increased their dollar amounts and have also increased their number of investments—all encouraging signs for entrepreneurs.

The report found that total angel investments in 2011 were $22.5 billion, an increase of 12.1 percent over 2010. A total of 66,230 entrepreneurial companies received angel funding in 2011, an increase of 7.3 percent compared to 2010 investments. The number of active investors also grew by 20 percent in 2011, reaching 318,480 individuals. The significant increase in total dollars invested along with the increasing number of investments meant the average deal size increased by 4.7 percent compared to 2011.

Where are angels investing? For 2011, software was the top sector, with 23 percent of total angel investments, followed by healthcare services/medical devices and equipment (19 percent), industrial/energy (13 percent), biotech (13 percent), it services (7 percent) and media (5 percent).

What about women and minority entrepreneurs? In 2011 women-owned businesses accounted for 12 percent of the entrepreneurs seeking angel capital; 20.5 percent of these women entrepreneurs received angel investment. So even though fewer women seek angel money, the percentage that succeeds at getting it is similar to the overall success rate. What’s more, the yield for investors is actually higher than average for women-owned businesses, by 2 percent.

Minority-owned firms were less well represented, accounting for just 7 percent of the entrepreneurs seeking financing from angels. The report states that the small percentage of minorities seeking angel investment is “of concern.” However, when minority entrepreneurs do get funding from angels, their firms’ yield for investors is in line with the average.

If you’re considering approaching angels, it sounds like 2012 could be the year to make your move.

Image by Flickr user Randy Robertson (Creative Commons)

 

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Choose the Right Path to Getting a Small Business Loan

March 13th, 2012 ::

By Karen Axelton

Are you seeking a loan for your small business? How can you boost your chances of success? One surprisingly simple way is by choosing the right bank to approach before you ever apply for your loan.

While many entrepreneurs start their search for funding at the bank where they currently bank, the bank across the street from their business or the one that has the biggest name, a new study by MultiFunding suggests that if that bank is a major one, you could be making the wrong choice.

Why? Well, MultiFunding’s research showed that as banks get bigger and more bureaucratic, their small business loan balances decrease.

According to MultiFunding’s data, there are about 93,000 bank branches nationwide. Of these:

  • 51 percent are owned by 62 national banks with branches in six or more states.
  • 14 percent are owned by 437 regional banks with branches in two to five states.
  • 35 percent are owned by 6,280 state banks witih branches in just one state.

Now here are some numbers that might surprise you:

  • The average branch of a large national bank manages $4.6 million in small business loans.
  • The average branch of a regional bank manages $6.8 million in small business loans.
  • The average branch of a state bank manages $9.1 million in small business loans.

In other words, the bigger the bank, the fewer small business loans it is making. Overall, large national banks use 4.41 percent of their domestic deposits to make small business loans.  Regional banks use 10.98 percent, and state banks use 14.46 percent.

Multifunding’s conclusion? “Local, community-oriented banks are best equipped to meet the needs of small business owners.”

Of course, it can make a lot of sense to start your search for financing at the bank where you already have your business accounts. But don’t assume that is your best choice. Investigate all your options, and give local and community banks in your area a fair chance. Talk to other business owners in your community and industry to find out where they are getting their loans and what kind of luck they have had with banks in your area.

By choosing the right bank to approach in the first place, you can save yourself time, headaches and the heartache of having your loan application turned down.

Image by Flickr user shinealight (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | 1 Comment »

Small Business Lending: Finally, a Light at the End of the Tunnel?

February 28th, 2012 ::

By Maria Valdez Haubrich

Small business lending activity seems to finally be looking up.  In January, alternative lenders—such as community banks, credit unions and others–approved more small business loan applications than they had done in any month during 2011, reports American Banker.

Banks with assets under $10 billion approved 47.5 percent of applications for loans between $25,000 and $3 million. That’s an increase from 43.5 percent approval in January 2011. Credit union approvals grew even more: 57.6 percent of those applications were approved, up from 48.9 percent in January 2011. And alternative lenders saw the largest surge of all.  Community development financial institutions, microlenders and accounts-receivable lenders approved 62.4 percent of small business loan applications, an increase from 49.3 percent in January 2011.

While smaller banks and alternative lenders are still the major source of small business financing, large banks are starting to show positive signs as well. American Banker cites statistics from Biz2Credit that show large banks approved more loan applications in January than in any month of 2011. That doesn’t mean big banks are opening the vaults freely: Biz2Credit reports that banks with assets of $10 billion or more approved only 11.7 percent of loan applications. Before the recession hit, large banks’ loan approval levels hovered in the 40 to 44 percent range.

However, the overall good news seems to be inspiring small businesses to apply for loans—something that many had given up on during the recession years. Biz2Credit reports that its loan application volume was up 35 percent in January compared to December 2011. Although loan applications typically increase in January, this is a larger surge than last year’s 21 percent increase.

Biz2Credit also notes that an increase in startups seeking funding may be one reason alternative lenders are showing a surge in loan approvals. Startups traditionally have difficulty getting financing from bigger banks, which prefer to lend to businesses with a track record of success.

In addition, large banks are still cautious due to factors including the European financial crisis and the debt battle in Congress—both issues that have a disproportionate effect on large banks compared to smaller ones. Biz2Credit predicts that, having reduced their outstanding loan portfolios in December to shore up capital, big banks will cautiously start coming back into the fold and lending to small business.

Image by Flickr user Fiona Shields (Creative Commons)

 

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How Easy Is It for Small Businesses to Find Capital?

December 21st, 2011 ::

By Rieva Lesonsky

How is the economy impacting small businesses—in particular, their access to capital? The Small Business Success Study recently released by The Hartford found that some entrepreneurs face greater challenges than others in managing cash flow and getting the capital they need to operate or grow.

When asked “How easy is it for your business to generate positive cash flow in a typical month?” 39 percent of respondents said it was “moderately easy.” Just 19 percent described it as “very” or “extremely” easy. On the other end of the scale, 21 percent said it was “slightly” easy and one in five said it was “not easy at all.”

The study asked business owners whether their overall goal was to grow their business or simply to maintain its current size. Surprisingly, the entrepreneurs who were focused on growth were more likely to have challenges generating positive cash flow. Nearly one-fourth of them (23 percent) said it was not easy to generate positive cash flow, and just 6 percent said it was extremely easy. In comparison, only 16 percent of “maintenance”-oriented entrepreneurs had trouble generating cash flow, and 9 percent said it was extremely easy to do so.

What about getting the capital they need? Again, growth-oriented business owners faced more difficulty. Just 23 percent said it was “not difficult at all” to get a loan or other capital, compared to 41 percent of maintenance-oriented business owners. And nearly half (43 percent) of growth-oriented entrepreneurs said it was “extremely” or “very” difficult to get capital, compared to just 23 percent of maintenance-oriented business owners who said so.

Why the differences? The study didn’t draw conclusions, but perhaps it’s because growth-oriented business owners have higher expectations for cash flow or are more aggressively seeking capital. As such, they may find it harder to generate the larger amounts they need, compared to “maintenance”-oriented entrepreneurs who are satisfied with the status quo.

The Hartford did suggest an overall environment that’s more hospitable to small businesses would be helpful in meeting capital needs. “A more favorable lending environment [would help] small businesses that often rely on personal savings, credit cards and collateral (like their homes) to apply for a loan,” the report’s authors note, adding that “regulatory hurdles and compliance burdens persist for banks that want to make loans to small businesses.”

Image by Flickr user Benjamin Sperandio (Creative Commons)

 

 

 

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New Financing Option for Small Businesses: SBIC Impact Investment Initiative Launches

August 18th, 2011 ::

By Karen Axelton

Small businesses seeking capital in Michigan have a new source of options thanks to the Small Business Administration. The SBA last month announced that InvestMichigan! Mezzanine Fund will be the first licensed Impact Investment Fund in the SBA’s new Impact Investment Initiative. The $130 million venture capital fund will provide capital to businesses that are headquartered in Michigan, have a significant presence in Michigan or are in the process of expanding their operations in Michigan so they can grow and create jobs.

The InvestMichigan! fund is the first stage in a $1 billion commitment over five years through the SBA’s Impact Investment funds, part of the Obama administration’s Startup America initiative announced in January. Karen Mills, SBA Administrator, said Michigan was chosen as the launch state because of its economic struggles as well as opportunities.

Startup America is a White House initiative to bring together public and private organizations to help entrepreneurs. It will use the infrastructure of the SBA’s Small Business Investment Company Program (SBIC), which supplements private equity capital and long-term loan funds to help small businesses expand. In FY 2010, according to SBA data, the SBIC program provided $1.59 billion of financing to nearly 900 U.S. small businesses.

The Impact Investment Initiative is expected to put up to $1.5 billion into the hands of small businesses over the next five years. It will combine public and private funding for high-growth companies that generate not only a financial but also a “social” return. The program will focus on businesses in underserved markets or in sectors that have been defined as national priorities. Impact investments can be:

  • Place-based, targeting small businesses located in or employing residents of low or moderate income areas or economically distressed areas; or
  • Sector-based, targeting industry sectors that the Administration has identified as national priorities. (Currently only clean energy and education have been identified as priority sectors.)

The SBA will collaborate with private, institutional investors to identify impact investments and provide licensing and capital to fund managers who qualify to organize and operate an Impact Investment SBIC.

For more information on the Impact Investment Initiative, visit the SBA website.

Image by Flickr user TexasGOPVote (Creative Commons)

 

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Corporate VC Makes a Comeback

May 31st, 2011 ::

By Karen Axelton

Capital for small businesses has been hard to come by for the past few years, and venture capital has been especially so. But now a particular kind of VC—venture capital from corporations—may be making a comeback.

Writing in VentureBeat, venture capitalist Robert R. Ackerman, Jr., contends, “Corporations are seeing the light and reinvesting in venture capital” after a few dry years.

Ackerman cites some impressive figures. In 2010 corporations invested $1.9 billion in venture capital in the United States. That represents an increase of 33 percent from 2009 figures, and accounted for almost 9 percent of all VC investing in 2010, which Ackerman says is close to a record. In fact, he notes, last year corporate venture capitalists invested in 20 percent of all venture capital deals.

General Motors, Google, BMW and Verizon Communications are just some of the corporations getting involved in venture capital today.

Why are corporations suddenly getting back into VC? The answer has to do with small business. Corporations are recognizing small businesses as key drivers of innovation, and realize that small businesses are more efficient at using VC investments than are bigger ones.

The last big surge in corporate VC was during the dotcom boom of 1999-2000, Ackerman says. But this time around there are some important differences. Corporations are being more cautious with their investments, and small businesses are being more careful with the money.  Both are good news for avoiding a repeat of the dotcom bubble and its subsequent bursting.

Ackerman notes that the fit between corporations and the small business recipients of their capital investments isn’t always perfect. Corporations are slow-moving, anxious for fast results, and suffer from rapid turnover at the top, all of which can frustrate a small company’s management team.

But for small businesses seeking an answer to their capital problems, the influx of more options for finding investors can only be a good thing in the long run.

Image by Flickr user Futurilla (Creative Commons)

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Most Small Businesses Use Savings, Not Financing, to Grow

May 19th, 2011 ::

By Maria Valdez Haubrich

Many small business experts urge startup firm founders to use their personal savings to finance business startup, rather than trying to get financing from outside sources. This was good advice even before the Great Recession hit, and following this advice has become even smarter since then.

Most startup entrepreneurs are heeding that advice, a new study shows. Preliminary data from the 2010 Survey of Consumer Finances, a report by the Federal Reserve that’s scheduled to be released in full in 2012, show that more than 70 percent of U.S. small businesses use personal savings or assets as a main source of business funding, The Wall Street Journal reports.

But this doesn’t apply only to startups. As the businesses grow and become more established, one-third of their owners say they still use their personal savings to run, grow and expand the business. In comparison, a mere 5 percent said they use credit cards or business loans.

Perhaps it shouldn’t be surprising that small business owners are using their own money to run and grow companies, instead of trying to get loans or outside investment. During the depths of the recession, many entrepreneurs had their loans called in by banks—in some cases, even if they’d never missed a payment. And still others were turned down for expansion loans despite having orders in hand and proof of demand for their products or services.

Such behavior by banks seems to have convinced many small business owners they’re better off relying on no one but themselves financially. In fact, out of all the small businesses surveyed (for survey purposes, defined as companies with fewer than 500 employees), a whopping 80 percent say they have not even applied for a business loan in the last five years.

Surprisingly, however, the survey also shows that small business owners’ fears of being turned down by banks may be unfounded. Of those small businesses that applied for loans, only about 12 percent were denied. And almost every small business owner whose loan was approved got the full amount of financing he or she was seeking.

If you’ve let “fear of failure” hold you back from seeking a bank loan, maybe now is the time to make your move.

Image by Flickr user Jamie Welsh (Creative Commons)

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Small Biz Resource Tip: BoeFly

January 27th, 2011 ::

 

BoeFly

Calling itself the Match.com for small business lending, Boefly is a new online marketplace connecting small businesses seeking financing with banks looking to make loans to small businesses. While the credit crunch still makes it hard for a small business to find a loan, the creators of the site contend there are plenty of banks willing to make loans to qualified borrowers if they could only find each other. With over $1 billion in deals already listed on its website, BoeFly is proving its point. Also, the single application process and expert telephone support take some of the pain out of the hunt for funding.

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Small Biz Resource Tip: ProFounder

December 17th, 2010 ::

ProFounder

Looking to raise money for your small business? A new website called ProFounder wants to help you by offering two fund-raising solutions—private fund-raising and public fund-raising. Through the private option, entrepreneurs can share a percentage of their revenues with investors over a period of time through securities. ProFounder makes sure the business is in compliance with the applicable state and federal laws. The public fund-raising option lets businesses share a percentage of revenues with investors and nonprofits. For both options, the entrepreneur is limited to raising $1 million. Through ProFounder, you can even raise money from unaccredited investors such as friends and family.

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Can You Get Financing From Your Friends and Family?

December 8th, 2010 ::

By Rieva Lesonsky

It’s that time of year when your loved ones are making their holiday gift lists and hinting (or outright asking) to find out what you’d like to receive. Is it OK if your answer is “Financing”?

Getting financing from friends and family has long been one of the most popular ways small businesses got started. But for many people, the recession has put a crimp in this source of financing. After all, when Aunt Edna’s 401(k) was tanking in 2008, it was hardly the tactful time to ask her if she could spare $10,000 to help you launch a business.

Today, however, things are looking up. Hopeful signs are appearing on the economic horizon; consumers are spending a bit more freely; and big corporations are reporting record earnings. While unemployment is still high, most Americans are more confident the worst is over. If your friends and family members are among those feeling optimistic, now could be the perfect time to turn to them for an investment or loan.

  1. Choose your investors wisely. Look for friends or family members who can offer not only money, but also experience and advice. For instance, if you’re seeking the capital to expand globally, do you know anyone with experience growing a global business, or who has connections overseas?
  1. Consider the person’s finances. When word gets out you’re seeking capital, you might find some family members offering to lend you more than they can really afford. Never take money from someone who can’t afford to lose it, and make sure anyone who does invest fully comprehends the risk.
  1. Pitch professionally. Give your friend or relative a professional presentation, just like you would with any investor. They need to receive a copy of your business plan and be able to ask any questions they may have.
  1. Make it legal. Handshake agreements rarely end well. Even if it’s your father-in-law who’s investing—make that, especially if it’s your father-in-law—have an attorney draw up a written agreement, and go over all the details of the deal with your accountant. Make sure the investor or lender clearly understands all details of the exchange, including tax ramifications (you want to avoid gift taxes) and his or her role in the company going forward.

If your friends and family do come through with the cash you’re seeking, pay them back—not only financially—by keeping them up to date on the company’s progress. Of course, any stockholders must be apprised of your business’s latest doings at an annual meeting, but you should also keep anyone who’s helped finance you updated on the business’s growth. Check in via phone or meet every few months for lunch to tell them how things are going. They’ll be happy knowing their investment is paying off in more ways than one.

Image by Flickr user Mel Silvers (Creative Commons)

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

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