![\"Tom](\"http:\/\/www.financenewmexico.org\/userfiles\/tjs_bw.jpg\")
Tom Stephenson, Managing General Partner, Verge Fund<\/p><\/div>\n
Raising equity capital for your business never happens in a vacuum. External forces inevitably affect when and how and where you hunt for investors, just as they affect your decision about how much money you\u2019ll need to support your company for a few years until you start showing a profit.<\/p>\n
External forces include the financing market \u2014 the universe of people and institutions that constitute funding sources for your company \u2014 as well as the larger business market in which you operate.\u00a0Understanding these forces will help you develop a strategy for fundraising.<\/p>\n
Beware the bubble<\/strong><\/p>\n Pure financial investors are in the game to make the most money they can from their investment in your company.\u00a0But even they can make mistakes and act impulsively.<\/p>\n Investors have no more insight than you do into how a market or an individual company will evolve. They, too, can misread the economic signs and underestimate or overestimate the market appeal of a particular product or service. Their fallibility is one reason why certain market segments get \u201chot\u201d and others get \u201ccold.\u201d The most obvious recent example of this was the Internet bubble that grew and burst at the beginning of this decade.\u00a0Investors believed Internet companies would revolutionize commerce, and some certainly did. But, dazzled by the success of high-profile ventures such as eBay and Amazon, many investors poured huge amounts of money into Internet-based companies based on overstated valuations and unrealistic expectations.<\/p>\n Bubbles based on such speculation usually burst, and that\u2019s bad for everyone in the long run. But a savvy entrepreneur can take advantage of modest bubbles to raise money for his or her business at favorable rates.<\/p>\n Some like it hot<\/strong><\/p>\n If you\u2019re fortunate enough to find yourself in a market that financers consider hot, you should capitalize on it.\u00a0In a hot market, many investors chase deals, and valuations are exceptionally attractive.\u00a0That makes it a good time to raise money, particularly if your industry regularly cycles through busts and booms.<\/p>\n A current example is the market for oil and gas. Because the market is booming and oil-exploration companies know it won\u2019t always be that way, they raise money and drill while they can \u2014 while investors are most willing to back them.<\/p>\n If you\u2019re in a hot market, now is the best time to raise more money.\u00a0If you\u2019re in a cold market, it\u2019s best to figure out how to manage on as little capital as possible.<\/p>\n Apart from hot or cold markets, the overall business climate will always have an impact on financing.\u00a0If you predict the economy is stuck in a period of slower growth that will last awhile, you should put money in the bank to survive these lean times.<\/p>\n If you\u2019re small and growing quickly, the economy\u2019s fits and starts might not shake you up too much. But if your company is mature and more vulnerable to economic turmoil, you\u2019re better off raising more money early in the downturn than doing it later, when terms might be less attractive and costs higher.<\/p>\n No one, of course, can accurately predict what the economy will do in the near or distant future, but paying attention to what\u2019s happening in the world of business is wise for anyone planning to raise capital.<\/p>\n Most businesses that choose the path of equity financing undergo up to three rounds of fundraising to reach profitability. Where you end up in that range should be a result of careful strategic planning rather than chance.<\/p><\/div>\n Learn more about Verge Fund.<\/span><\/strong><\/a><\/p>\n <\/a>Download 48_Business Financing Decisions in the Real World PDF<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" An analysis of the overall business climate – including whether your industry is booming or expecting a downturn – can help you decide when and how much loan or equity investment to request. Continue reading
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