Friday, February 17, 2006

Your Guide to Business Capital

PROFIT Magazine has just published its 2006 Finance Guide, an epic article I worked on most of last month.

If you're looking to raise funds for your business, this story looks at hot new financing sources and reviews the state of the art in Angel investors, Asset-based lending, Private equity, Venture capital, Public venture capital, Venture debt and ordinary commercial banking.

For those too busy to click, here's an excerpt.

Across Canada, moonlighting entrepreneurs, semi-retired executives and other venturesome high-net-worth individuals are looking to invest in private, early-stage businesses with great growth prospects. They come in earlier than the venture-capital funds, consider relationships to be as important as the business plan, focus less on high-tech businesses than most VCs and invest anywhere from $20,000 to $500,000.

Some angels are mainly after higher returns than they can get from indexed mutual finds. But many others are motivated by the thrill of being involved in a risky, growing business that needs both their expertise and cash. They tend to enter the picture after a firm has burned through its "love money" (from "friends, family and fools"), and well before it can earn the attention of VC funds. They hope to hang in for three to five years, then collect a big payout as the firm starts making hay in its market or attracts venture capital.

(SNIP) .... Where angels used to keep a low profile to discourage endless appeals for money, today more and more of them are uniting in "angel networks" to systematize the vetting of potential deals and share the risk with fellow angels. Sean Wise, president of Toronto-based Wise Mentor Capital and a close observer of the equity scene, says this reflects a new mentality: "Before the tech bubble, they were very much more lone wolves, investing in one company at a time. Now they have banded together to share best practices, increase their bandwidth, work together on due diligence and boost deal flow."

(SNIP)...But you don't have to go through formal organizations to find an angel. They're all around: a recent U.S. study shows 3% of Canadians invest in private businesses. And most aren't joiners.

Andrew Patricio, a partner in Toronto-based Biz Launch, says many of his clients are accessing relatively large sums from non-aligned angels. Local angels invest after a lot less due diligence than regular VCs, and are generally more open to investing in a variety of sectors. Patricio says he knows one entrepreneur who just scored $500,000 to make fishing rods, and a makeup distributor who raised $250,000.

Don't stop now! You can read the whole story here.

PROFIT's Jim McElgunn, my assigning editor on the project, also offers a good interview with consultant Sean Wise on "Five Keys to Getting Cash." Click here for more.

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