First Round Funding

First round funding or "venture capital" typically follows seed and early stage capital that was used to build the business’ full-time management team, develop the business’ first saleable product, and demonstrate that the business is very likely to be profitable.

Before approaching funding sources the following should be completed:

◦Financial Analysis: Identifying all sources of revenue, assessing likely business costs, determining capital needs and modeling financial projections.

◦Market Research: Consisting of primary and secondary research to determine market size, market growth potential and other relevant factors.

◦Competitive Analysis: Identify relevant competitors and assess their strengths and weaknesses as an aid in determining underserved market needs and potential market demand for a new business’ products and/or services.

◦Business Plan Development: Developing thorough, actionable plans for implementing your mission statement and, subsequently, turning a profit.

First round funding sources are primarily hands-off investors who will open their rolodexes to aid you with their contact base and open their wallets to invest in your ready-for-market business.

Equity Loan

Equity loan

Is typically an "investment" in a company that is secured by a certain amount of that company’s shares and structured, in part or whole, as a loan. Investment banks will provide funds secured by the "equity" or ownership shares of your company.

Companies that receive funding are those in large rapidly growing markets, or in niche markets which are not targeted by major players.

Investment Stage

Early and later stage companies with a founder and partial management team with revenue or profits and the need for expansion capital.

Size of the Investment

Typically $1-2 million initially with up to $5-10 million over the life of the investment.

Duration

Investments typically are for 3-5 years, but sometimes may last longer.

Management Buy Out

Management buy out: Existing company managers acquire a large part of ownership.

Management buy out solutions involve working to structure the buyout of the corporation, subsidiary, division, or product line from start to finish. During this process if a company is already public than it would become a private company once the management took over ownership. Most of the time though during this phase a company is privately held.

The concerns that go along with a management buy out is that the management will possess more knowledge than the previous owners due to their current positions. Another negative of a pending management buy out is the downward spiral of the company stock prices. Once current investors get word of this they will start selling their shares.

Many people are against a management buy out because they think it could be considered insider training because of the knowledge of the management of the business situation.

Management will choose to pursue a management buy out since they want to save their current jobs. They can tell that the company may be going under, so they want to work hard to resurrect the company and make some big changes. Also the management may have received word that an outside management team is coming in to take over their posts. It is enough to bring them to take action.

Even if all of the managers pooled all of their money together, it typically would not be enough capital to really save the business. So it is good to pursue some debt financing options found in our free business capital search engine.