This summer, Kelly had the opportunity to be a member of the Goldman Sachs 10k Small Businesses Cohort 20. Listening to her fellow brilliant and successful owners and colleagues provided a lot of insight and wisdom.
One thing that was clear was that as IPOs proliferate in the public markets, institutional money is actively looking for opportunities. With that in mind, we invited our YES colleague and dear friend, Janette Merritt, Vice President - ABL & Factoring, Goodman Capital Finance, to share her perspective after decades of experience working with business owners.
When it comes to business finance, venture capital grabs most of the headlines. The right VC partner can add a lot of value – to the ‘right’ company, in the ‘right’ situation.
To be clear, every situation that involves venture capital, involves loss of equity. Every situation. It is certain: This trade of equity for capital may not always be in the best interest of the business. Loss of equity is not just about loss of payout down the line. Loss of equity is also about giving up strategic and operational control – most of the time. The PRICE of venture capital can be pretty high for a business when consideration is given to ALL of what is being given up.
It’s really important that entrepreneurs and business owners understand the true cost benefit ratio of selling equity to venture capital firms. Particularly when so many businesses are just experiencing the pain of growth or downturns, and it’s really all about Cash Flow.
There are options!
Working capital is what most businesses really need – from start-ups to family enterprises. Working capital provides the cash flow needed to keep the operation going and helps a business get ahead. Alternative funding through revenue financing, invoice factoring, asset-based lending, even debt funding is typically between 1-5%. Compared to a company giving up equity, that’s a heck of a deal!
Additionally, alternative funding increases a business’s available funds without piling on more debt. With the right alternative financing company and partner, a business will also enhance debtor and vendor relationships. PLUS – unlike venture capital, the finance firm also provides administrative support, a path to better credit, and a good amount of flexibility with their funding solutions. Win, win…win!
Giving up equity should not be a company’s first ‘go-to.’ Venture capital is right for some, but it’s not right for most – particularly when there are so many less expensive alternatives out here. Alternatives that allow business owners to stay in control of their business AND keep their equity.
If you'd like to discuss these alternatives, let's talk.