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Here the possible ways you can provide financing for the growth of
your business. I have listed the different methods along with their
pros and cons. It would be good to read the entirety of the articles
to get a better grasp of the concepts.
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IPO ? ?An initial public offering (IPO) is the sale of equity in a
company, generally in the form of shares of common stock, through an
investment banking firm.?
?Initial Public Offering?
http://www.entrepreneur.com/article/0,4621,300892,00.html
Pros:
- ?Access to cash that may be raised at the time of flotation and
subsequently through secondary issues.?
- ?Enhanced status and credibility with employees, investors,
suppliers and customers.?
- ?Retention and recruitment of employees and management through the
introduction of share incentive schemes.?
Pros and Cons of IPOs
http://www.grant-thornton.co.uk/pages/services-corporate_finance-capital_markets-flotations_initial_public_offerings-pros_and_cons_of_going_public/$FILE/pros+and+cons+of+going+public.pdf
- ?Public companies are worth more than private companies. The public
companies that compose the Standard & Poor's 500 are valued at about
17 times their earnings??
?Initial Public Offering?
http://www.entrepreneur.com/article/0,4621,300892,00.html
**********
Cons:
- ?Loss of control through the introduction of external shareholders.?
- ?Short term market expectations of investors and the market may not
align with your longer term strategic visions for your business.?
- ?Costs of going public and maintaining a listing can be significant.?
Pros and Cons of IPOs
http://www.grant-thornton.co.uk/pages/services-corporate_finance-capital_markets-flotations_initial_public_offerings-pros_and_cons_of_going_public/$FILE/pros+and+cons+of+going+public.pdf
- ?A company needs a significant amount of permanent capital it won't
have to pay back to a bank or other lender.?
- ?A company seeks growth through acquisitions, and needs a "currency"
other than cash to attract and consummate deals.?
?Initial Public Offering?
http://www.entrepreneur.com/article/0,4621,300892,00.html
----------------------------
Direct Public Offerings ? ?Direct public offerings (DPOs) are the
direct sale of shares in a company to individual investors.?
?Direct Public Offerings?
http://www.entrepreneur.com/article/0,4621,300884,00.html
Pros:
- ?Typically, you'll surrender a smaller portion of equity for the
same amount of capital than required by venture capitalists or even
private placements.?
- ?Undergoing this process gives you the experience with investment
banking and shareholders long before you conduct an IPO.?
- DPOs provide a good chance for company exposure since such an
activity involves extensive publicity campaigns.
Cons:
- ?getting a document through state regulators or the SEC is no easy task?
- ?successful sale of your stock can hardly be presumed?
?Direct Public Offering?
http://www.gopublictoday.com/financing/financing-types-dpo.php
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Reverse Merger ? ?In a reverse merger, a privately held company buys a
publicly traded, but usually dormant, company. By doing so, the
private company becomes public.?
?Reverse Merger?
http://www.entrepreneur.com/article/0,4621,300886,00.html
Pros:
- ??a ?reverse merger? is a cheap alternative to an IPO. There's no
prospectus to print, no road show to orchestrate, and no underwriter
to split the proceeds with?
- ??there's also none of the hoopla or credibility that comes with a
successful offering.?
Cons:
- Too much suspicion of financial manipulations on the deal.
- Being vulnerable to early shareholders of the public company who
have a different agenda.
?Go Public Through the Back Door?
http://www.inc.com/articles/1999/03/12139.html
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Venture Capital ? ?Institutional venture capital comes from
professionally managed funds that have $25 million to $1 billion to
invest in emerging growth companies.?
?Institutional Venture Capital?
http://www.entrepreneur.com/article/0,4621,300898,00.html
Pros:
- ?Financial strength for global competition?
- ?Share buy-back opportunity?
- ?Easier to get listed on a stock exchange?
- ?No conflict of interest?
- ?VC network can enhance the company's business?
?FAQ's for Venture Capital or Private Equity?
http://www.venturecapital.or.th/eng_faq_general.htm
- ?VCs are not going to pressure you for monthly payments with
interest giving you a wider flexibility to build your company.?
- ?They also are not your family which may suddenly need their money returned.?
?Venture Capital Investments?
http://www.washingtonpost.com/wp-dyn/articles/A42124-2004Oct18.html
***********
Cons:
- ?Lose part of the ownership?
- ?Cannot manage the company as a family-run style?
- ?Need to communicate to the VC before certain business decision?
?FAQ's for Venture Capital or Private Equity?
http://www.venturecapital.or.th/eng_faq_general.htm
----------------------------------
Angel Investors ? This is primarily a version of venture capital but
instead of firms, individuals are investing in your company.
Pros:
- Angels maybe open to more creative and untested ideas.
- Since most of them are former entrepreneurs as well, they understand
the difficulties of fellow startups as well.
- The internet makes it easier to find networking opportunities with
Angel investors.
?Startup Financing: Angel Investors?
http://www.allbusiness.com/articles/content/22154.asp
- ?Despite the relative obscurity of angels, it takes much less time,
on average, to meet with and receive funds from a private investor
than a venture capital firm.?
- ?The due diligence is less involved with an angel investor??
- ??angels typically expect a lower rate of return.?
?Angel Financing?
http://www.gsb.stanford.edu/ces/resources/angel_financing.html
***********
Cons:
- Participation of angel investors in your business could be a time
consuming matter
- Requesting the right amount capital is critical since raising less
money may mean going through the process all over again.
?Startup Financing: Angel Investors?
http://www.allbusiness.com/articles/content/22154.asp
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Bank Financing:
Pros:
- ??commercial banks can help your business increase output by
providing funds to secure new equipment, machinery, vehicles, and
other instruments and devices.?
- ?The second area where the banks can help is with working capital
lines of credit to help your business expand its cash-flow volume.?
Cons:
- ?Start-up companies have little, if any, consistent revenue and
operating cash flow, so their ability to regularly pay back loans in
monthly or quarterly installments is severely hindered.?
- Bank loans are secured by tangible the company?s valuable tangible assets.
- ?If the borrower cannot pay back the loan, the bank can sell the
asset to recoup the outstanding principal and accrued interest due.?
?Banks as a Capital Growth Option?
http://www.entrepreneur.com/article/0,4621,296535,00.html
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Subordinated Debt ? ?Sub-debt, as subordinated debt's often referred
to, is debt that ranks behind the main debt, known as senior debt, in
priority of payment. Senior debt principal and interest?usually in the
form of a bank loan?is paid off first while the subordinated debt
principal and interest is paid off second.?
Pros:
- ?bankers may consider it part of the "equity cushion" that supports
the senior bank debt?
- less loss of ownership because of warrants
- less-expensive form of financing
- ?Other major advantages of this type of financing include putting
dollars back on a company's bottom line because interest payments are
tax-deductible, which lowers the company's taxable income.?
Cons:
- ??interest and principal payments are contractual and must be met
regardless of the firm's financial position?
- The company and managers may be restricted strategically as well
because of the loan
- The value of equity maybe reduced because of the debt
?Equity Vs. Sub-Debt Financing?
http://www.entrepreneur.com/article/0,4621,317209,00.html
--------------------------
Short-Term Notes ? ?Short-term notes are generally issued to provide
large amounts of money to undertake a project through some prescribed
milestone or to finance several smaller projects over a period of
several years.?
Pros:
- A great advantage if the short-term notes are provided by the government.
- Useful as well if there the project is composed of different stages.
- It will be a good alternative if there is uncertainty in the
calculation of long-term financing due to unforeseen circumstances.
Cons:
- Government usually puts a limit on the issuance of such notes.
- ?....success of such a financing is dependent upon specific
marketing conditions including the size and credit worthiness of the
authority, issue size and the general economic forecast and activity.?
?Short-Term Financing?
http://www.hrg-inc.com/resources_info/finance_overview2.asp
?Raising Money With Short-Term Notes?
http://www.entrepreneur.com/article/0,4621,309563,00.html
----------------------------
Convertible Loan ? ?A convertible loan is first and foremost a
loan--plain and simple. It involves borrowed money that has to be paid
back with interest. Typically, the conversion feature gives the lender
an option to convert all or a portion of the outstanding principal of
the loan into some form of an equity position in the borrower's
company.?
Pros:
- ?The firm can benefit from an exercised conversion in that a
significant liability on the balance sheet is removed and the owner's
equity increases representing the new shareholder stake.?
- ?This improved financial position could help the borrower in
securing other future deals by increasing the company's net worth.?
Con:
- ?The convertible loan allows the lender to swap a fixed dollar loan
value for an equity position in the borrower's company that could be
worth (over time) far more than the original loan value.?
?Understanding Convertible Loans?
http://www.entrepreneur.com/article/0,4621,304084,00.html
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Receivables Factoring - ?A factor works by providing a cash advance
based on the total value of the invoices that you provide as
collateral.?
?Factor Your Receivables for More Cash?
http://www.entrepreneur.com/article/0,4621,300447,00.html
Pros:
- ?You can receive quick payment in cash after the time of shipment,
delivery and invoicing a customer.?
- ?Factoring is a sale of assets (invoices), not a loan.?
- ?Most factoring is called "non recourse," meaning that the factor
company purchases all rights in the invoices and the seller has no
responsibilities for collection.?
Cons:
- ?Traditional loans will typically be less expensive than the costs of factoring.?
- ?Collection actions taken by the factor company may endanger an
ongoing business relationship with one of your customers.?
?Factoring?
http://www.toolkit.cch.com/text/p10_3730.asp
Search terms used:
pros cons financing
IPOs
?venture capital?
"angel investors"
?Direct Public Offerings?
?Reverse Merger? bank
?subordinated debt?
?short-term notes?
?convertible loans?
receivables factoring
I hope these links would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
Thanks for visiting us.
Regards,
Easterangel-ga
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