![\"Paul](\"http:\/\/www.financenewmexico.org\/userfiles\/Paul%20Goblet.jpg\")
Paul Goblet, Financial Advisor, NMSBIC<\/p><\/div>\n
The best source of business capital often comes from friends or family.\u00a0They know you, they like you, and they trust you enough to provide equity for \u2013 and receive part ownership in \u2013 your firm.\u00a0But sometimes a company enjoys greater success than its ability to finance its own growth via family and friends.\u00a0That\u2019s when you need to go to an outsider for additional equity.<\/p>\n
The availability of private equity capital has changed fairly dramatically over the last five years.\u00a0The common complaint was that you had to go to California or New York to get equity.\u00a0\u00a0 But thanks to the New Mexico State Investment Council, several funds have now started and are headquartered in New Mexico, and there are now fifteen to twenty funds with offices in the state.\u00a0While we may not have a huge track record of companies attracting equity, the number of funds and investments in local businesses has consistently grown since 2001.\u00a0Most of these funds target technology and most of the investments have been made in technology-related companies.<\/p>\n
The process of obtaining equity capital can seem daunting.\u00a0Without knowing the investors, you may find it difficult to trust them.\u00a0The dollar value you place on your company may be different than the amount the investors believe it\u2019s worth.\u00a0You also may be afraid they will take over your company, leaving you with little control.
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\nThese impediments are easily overcome through referrals, advice and education.\u00a0The real challenge, however, comes in convincing venture capitalists to invest in your firm.<\/p>\n
While a private equity or venture capital investor may receive a stock certificate and a small dividend, there is little or no historical revenue or income to analyze. \u00a0He is betting on your future success because the investor only gets a return if the company is successful.\u00a0Equity capital is typically spent on things like marketing, product development, office equipment and new employees \u2013 and then it is gone.\u00a0Investors have to be very confident that the business, the product or potential product, the management and the timing are all perfect or as close to perfect as possible.\u00a0Things rarely go perfectly, so they are taking on very high risk.\u00a0That is why due diligence is painstaking, the process is time consuming and the likelihood of getting a yes is fairly small. \u00a0If you need equity, and you need it right now, don\u2019t bother with professional equity!<\/p>\n
Venture capital is disciplined because investors often get it wrong.\u00a0Since they are typically very early-stage investors, things don\u2019t always go as anticipated and they lose money.\u00a0Therefore, professional investors typically invest only in areas in which they have a great deal of experience.<\/p>\n
If you are a software firm, find funds whose managers really understand and have invested in software deals.\u00a0Those funds usually won\u2019t be provided to a local manufacturing company, so if you are in manufacturing, find a fund that specializes in that.<\/p>\n
If approached correctly, professional equity can bring far more than just capital.\u00a0Equity investors provide industry expertise, assist in attracting board members and key staff, help obtain bank financing, test and expand your business or marketing plan, bring corporate governance and are a true partner.<\/p>\n
Obtaining professional equity is a process that demands forethought, preliminary education, and a proper introduction.\u00a0There are resources like Technology Ventures Corporation (TVC) whose folks know every source of equity capital in the state.\u00a0Get an introduction.\u00a0Don\u2019t just make a cold call and say you are looking for money!<\/p>\n
While professional investors aren\u2019t perfect for every company, they are often the critical missing piece of capital on the balance sheet.<\/p>\n
Use the search tool at FinanceNewMexico.org to help find the most appropriate source of equity for your firm.<\/p>\n
Download 14_Equity Financing for Start-ups and Small Business PDF<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" While the best source of business capital often comes from friends or family, sometimes the financial needs of a company are greater than what they can contribute. Equity capital, obtained from professional investors, is addressed. Continue reading