Lana Larder details potential financing solutions for entrepreneurs
Entrepreneurs should be aware of alternative investors and alternative financing solutions available to either start up a business or access working capital for growth in today’s economy. Alternative investors for business owners may include Angel investing, Venture Capitalist investors, and microfinancing.
Angel investors and Venture Capitalists are accessible in Canada and United States. Part of the solution for small business owners is microfinancing. There are some microfinancing programs accessible in Canada. Lana Larder, President of Halifax, Finance, located in Halifax, Nova Scotia is an advocate for microfinancing in Canada. Halifax Finance provides investment readiness for Angel and Venture Capitalist investments.
Detailed in this article are alternative financing solutions for business owners. Included are potential questions that business owners may have to assist them to understand what alternative financing solutions are available and what may be needed to fulfill the financing gap for business owners in Canada.
What is an Angel Investor? In Canada, there are well over 200,000 potential angel investors that annually invest about $3 billion in Canadian businesses. Angel investors are individuals who invest their own capital in businesses, both in the technology and non-technology areas. Research shows such individuals typically have run their own small businesses, have significant net worth and income, tend to be college-educated and are extremely discerning in the projects they will invest in. These Angels typically invest in a business after the entrepreneur’s “love capital” (capital from relatives and friends) has been exhausted.
Why entrepreneurs should use Angel Investors? Entrepreneurs that own small businesses may find it difficult to get financed from banks without having secured assets or providing personal guarantees, etc. Angel investors are the logical source to provide financing to small businesses.
What do Angels typically invest in? Angels primarily invest in early stage companies that have a strong management team, have a viable product/service that has a high market potential, that is one of its kind and have a pre-money valuation of $10 million or less. Most angel investors seek to invest close to home-within a 150-km radius of where they live.
What is the range of investments by Angels? The amount of investment per company ranges from $150,000 and upwards of $500,000 to $1 million and up. Some angels will invest from $10,000 to $150,000 but these angels can be harder to locate.
What do Angels provide for entrepreneurs? Angel investors allow entrepreneurs to find a source of capital; find an experienced investor that can provide guidance and support; and make it all come together in a fast and efficient way.
What is a Venture Capitalist Investor? A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. Venture capitalist usually look for a higher rate of return than would be given by more traditional investments.
Generally, venture capitalist look for returns of 25 percent and up. Venture Capitalists are professional investors. They manage funds and look for suitable investments.
Why entrepreneurs should use Venture Capital Investors? Venture Capitalists may invest in companies with a high level of uncertainty beyond the usual uncertainty factors linked to Research & Development and the development of new technologies and emerging markets that are difficult to overcome or even quantify. Sometimes companies have virtually no revenues or profits and these companies can have very limited tangible assets; most of their assets are intangible (R&D results, intellectual property and people) that make it virtually impossible to secure conventional debt financing. Finally, it can take a long time, up to 7 years or more before these companies can launch an Initial Public Offering (IPO) or are acquired and this also makes it difficult to secure conventional debt financing.
What do Venture Capitalists typically invest in? Venture Capitalists typically invest in privately, held high-growth companies.
What sectors have Venture Capitalists invested in Canada? Between 1996 and 2007, venture capital investors financed 2,175 technology companies. Prior to 1996, financed 15 companies that are still operating and have sales larger than $50 million in 2008. On average these 1,755 companies have sales of $10.5 million and are a mix of small, medium and large companies that include ICT, Life Sciences and other technologies.
What do Venture Capitalist provide for entrepreneurs? Venture Capitalists team up with serial entrepreneurs and take the risk to finance new start-ups at a time when nobody else will fund them. They work with entrepreneurs to refine their business strategy and strengthen their management team; build strong relationships with
entrepreneurs and back them boldly to finance the company’s expansion strategy.
It is important to note that commercial banks, Venture Capitalists and Angel Investors are sometimes not interested in investing or making commercial loans under $50,000 nor are they willing to take the risk of investing in very small start-up businesses or in loans that are not fully collateralized. So, for the small business owners in Canada microfinancing becomes a solution.
What is microfinancing? Microfinancing is predicted on the belief that access to affordable capital can play a critical role in unleashing the entrepreneurial capacity of individuals and/or business owners that can not access traditional capital.
Why entrepreneurs need microfinancing? Microfinancing typically lend to clients that banks consider too risky and/or marginalized businesses and can help small business owners to start-up businesses or provide working capital.
What sector does micro financing typically invest in? Microfinancing is typically provided for women because women have a harder time to access financing for businesses. However, microfinancing in Canada is not only targeted to women. The best candidates are start-up companies with lower capital requirements and limited operating history. Microfinancing is being done all over the world and is a proven method that provides capital for small business owners that do not qualify for traditional financing.
What is the range of microfinancing needed in Canada? To start or grow a small business in Canada a typical microfinancing loan may begin at $10,000 up to $100,000.
What does microfinancing provide for entrepreneurs? Microfinancing provides capital and other business supports necessary to create a successful business.
Entrepreneurs benefit from the intermediaries expertise in business. Following a microfinancing loan entrepreneurs may be able to graduate to bank loans, Angel investments or Venture Capital investments.
Microfinancing loans in the United States have held up well and there is increased activity as recently as February 2, 2010 where a new financing commitment of US $3.5 million to implement new micro financing, micro banking and micro lending network http://www.angelsinaction.tv
Microfinancing can play a growing role in financing small businesses in the recovery in Halifax, Nova Scotia. There are many Canadians with brilliant ideas in need of quick and ready financing.