Finding the money to run a business is a concern that begins at conception and doesn’t stop until the business fails or is sold to someone else. Satisfying a healthy business’s appetite for capital requires knowing which kinds of investors to approach at each stage of a company’s growth and what size of investment to expect at each stage.
Each funding source has its own guidelines for when to help — and how much to give — a company that’s hungry for capital. But the first thing all investors want to know is what stage a company has reached and what chance it has to grow and make money.
Few businesses follow a predictable path and timeline from one stage of life to the next. Some linger for a long time as startups, while others dash directly from startup to exit. Knowing the life cycle of a typical business can help an entrepreneur know where to find capital to reach the next stage.
Life cycle of a business
The seed or startup stage starts with an idea or a prototype for a product or service. At this stage, entrepreneurs either tap friends, family members or other personal contacts for funds, or they seek angel investors, grants, micro loans or venture capital.
When a company is preparing its product or service for a market launch, it’s in the early stage of life. As it begins to produce products and secure customers, the business might need a cash infusion and is most likely to find it through a bank loan, grant, micro loan, angel investor or venture capitalist.
When the company outgrows its original goals, it’s in the expansion or growth stage. Banks, government lenders and venture capitalists are interested in companies like these that are moving into new markets, gaining more market share, introducing new products or services and seeking new customers.
Changes in the economy or market conditions can cause sales to decrease and a company to decline. Faced with a negative cash flow, the owner must decide whether to seek another opportunity or find ways to salvage the business. Possible funders at this point include suppliers, customers, co-owners or partners.
At the exit stage, an owner is either selling or shutting down a business. Accountants and financial advisers can help decide the best exit strategy, but common ways to raise money at this stage are through management buybacks, Employee Stock Ownership Plans or Initial Public Offerings.
Finding the money
The number of business equity funding sources in New Mexico has increased significantly in the past decade. Several companies collaborate with the New Mexico Small Business Investment Corp. to get capital where it’s needed.
ACCION New Mexico, The Loan Fund and WESST Corp. provide loans to all types of businesses. Flywheel Ventures, the Kickstart Fund and Verge provide early stage venture capital; Flywheel also manages the Gap Fund, which has invested in seven New Mexico businesses in the past 18 months — typically technology companies just getting on their feet. Mesa Partners and New Mexico Community Capital provide growth stage venture capital to manufacturing, distribution and service companies.