While growth capital is readily available for large scale profitable enterprises and venture capital is focused on a narrow segment of industry sectors (life and bio sciences, high tech and software, and energy); useful capital sources for asset light service businesses are bridging the gap for companies looking to jump the chasm from a small and medium sized business with limited financing options to a market leader. And jumping the chasm creates the opportunity for wealth creation for founder’s not readily available via other financing instruments.
Useful Capital Funding
An alternative to venture capital funding is useful capital financing that preserves the founder’s equity and has flexible payment terms controlled by the entrepreneur.
Historically, startups have raised seed funding from friends and family money and/or angel capital to create an initial product or service in the market to validate the initial idea.
Annually there are approximately half a million businesses created in the USA, and only 600 to 800 companies receive venture capital funding as it requires a significantly large market opportunity. For startups driven by innovative founders venture capital can be the perfect marriage of funding coupled with ongoing management support necessary to transform the company into a market leader. But for most entrepreneurs venture capital (VC) is simply not available as the company focus is too narrow and/or the industry is not sexy.
Growth Capital Funding by Industry via NVCA 2013 Yearbook PDF Report:
Growth Capital Funding by Industry Sector via NVCA 2013 Yearbook PDF Report:
Once a company is beyond its rapid growth stage multiple types of private equity capital are available to profitable enterprises with significant EBITDA in the form of mezzanine and growth capital instruments in order to recapitalize the business. A recap is most often used for the purposes of succession planning and/or to pursue expansion.
For asset light businesses venture capital is simply not available. Entrepreneur friendly capital is more inclined to invest in low-tech industries, multi-location service companies, and franchises than venture capital.
Did you know that the top quartile performing VC’s over the last decade returned their investors on average less than a 10% return ?
VC’s swing for homeruns, but only average 10 to 24% percent investment returns. Investment risk and coupled with the legal responsibility to maximize returns to their shareholders and not the invested company shareholders capitates funding flexibility for entrepreneurs. At the end of the day VC’s are fiducially responsible to their investors and not to their companies.
Creating Wealth Through Growth
Did you know that from 1995 – 2009, privately funded capital backed companies grew sales by 133%, while the United States grew sales by 28% and grew jobs by 82%, while all other companies in the U.S. economy grew jobs by 12%?
Looking to grow and create liquidity?
There are better options for asset light service businesses. Most business owners have heard all about venture capital funds as a source of funding for startups and early-stage companies. But what about profitable companies who want to preserve their equity— where can they go for their millions?
Jumping the Chasm from a Subscale Company to a Scaled Enterprise
Jumping the chasm from a “sub scale business” to what financial investors and strategic buyers consider a “scaled enterprise” is really difficult.
Did you know that less than 1% of new businesses achieve $10 million in annual revenues in their first ten years?
Of these, six out of every ten fail to “jump the chasm from subscale or scale”. For any businesses, growing beyond subscale requires a smart plan for growth.
Related downloads from Ephor Group:
Useful Capital Funding Growth Options
Attracting Capital Investment and Institutional Funding
The Founder’s Dilemma and Overcoming Barriers to Growth