For instance there may be conditions attached to the

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Unformatted text preview: nance. For instance there may be conditions attached to the grant, such as the number and type of people to be employed, and the items on which the money can be spent will be restricted. Remember that some grants are repayable and that they are likely to be only part of a financing package. The availability of a grant may facilitate the sale of equity. Do You Have A High Quality Management Team Or Proven Track Record? Equity investors are more interested in the quality of the people they are investing in than in the figures in the financial projections. If you are not able to convince a venture capitalist or other equity investor about your team's commercial and managerial abilities you will not convince them to invest in your business. Can Management Be Improved? Where management quality is not properly balanced you could consider bringing more skilled managers on board - there may be an opportunity for a management buy-in and this may be another way of raising equity funds. Alternatively, you may be able to find an individual who is prepared to invest in your business and assist its management, probably on a part-time basis. Is Your Business Profitable And Fast Growing? Venture capitalists are primarily interested in investing in profitable and fast growing companies. After all they are themselves commercial organisations. They will be looking to finance a business through a key stage of growth for say 2-5 years and then to be able to exit" from that investment by selling on their equity stake. The availability of an 'exit" route is, therefore, also an important consideration for venture capitalists. If the business is unlikely to develop significantly over the next few years venture capitalists are unlikely to be interested. Indeed they will, normally, expect your business to double its profits every three years. Are You Willing To Share Control? Selling the equity of your business means entering a partnership with a new part-owner of your business. You must recognise that you will be giving up a share of control. However, although it is important that you get on well with your new partner and are able to work with them, you should recognise the benefits of having a partner to whom you can turn for advice when you are dealing with business matters of which you have little experience. Remember also that in practice many other financing arrangements mean giving up some control. For instance businesses with overdrafts and borrowing are carefully monitored by their banks that may require personal guarantees and this influences the way that they are run. Is Factoring Suitable? Factoring or invoice discounting is normally only suitable for small but fast growing, businesses that wish to concentrate their resources on the commercial operation and not on debt control and who are unable or unwilling to sell a share of equity. While a business is small it may avoid the need to employ a credit controller by factoring its debts, but the practicality of this option will depend on the quality of the business' debtors because factoring companies will only factor debts that they regard as r...
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This note was uploaded on 02/27/2013 for the course GBMT 300 taught by Professor Javierwujie during the Summer '12 term at Wisconsin.

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