Raising Capital: 3 Company Examples
I personally know of three company founders who are in the process of raising equity capital for their respective businesses. Two of these companies are revenue generating yet are still very much in the start-up stage. The first (Company A) is a clothing wholesaler serving a niche market with US-based manufacturing and eco-friendly positioning. Another (Company B) is a convenient health food product company which now has a presence in some Whole Food stores. The third company (Company C) is a much larger entity in the stable growth phase.
Since the first two companies are still considered "startups", they are seeking angel capital. Company A has raised $1.5 million from a large number of small angels and one larger investor. Company B has raised ~$100,000 in angel investment but has largely adopted a bootstrapping strategy. Company C, which has largely self-funded growth through operating cash flow, is now seeking a strategic investor, private equity or mezzanine financing.
Whenever business owners or founders tell me they need to raise capital, I ask them, "Why?". "What do you need the money for? What will you do with the money you raise and when will you do this?" I ask business owners these questions to get them to separate the money they need from the source. Too often people get tunnel vision. Separating the source of the funds from the use of the funds helps spark creativity and identification of additional or more targeted capital sources.
Company A now seeks either a large angel investor with strategic ties and contacts in its industry or a strategic investment from one of the larger companies in its industry. Why? Company A wants to increase its distribution channels, raise its industry profile and eventually become the eco-friendly go-to wholesaler in its niche...before other eco-friendly competitors with a US manufacturing base enter the fray.
Company B has relied on their strong banking relationship to obtain a lot more debt than the average startup would typically have access to. It also helps that two of the co-founders successfully sold another company a few years ago. Although the founders are willing to shoulder huge financial risk, they realize they do need some additional equity capital to shore up the balance sheet, so they are seeking a few committed angel investors willing to also put in some sweat equity to ensure their investment is a success. The founders have utilized creative financing, getting friends and business associates to provide services, products and introductions that enable Company B to conserve cash. For example, they are negotiating with a public relations firm to help them get noticed by the companies and individuals they are pursuing and are considering hiring college PR interns.
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