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By Karen Rands, Founder, Kugarand Holdings

Today, companies raise investor capital from private funding sources such as private investors, accredited investors, venture capital funds, and alternative funding sources. With all the news about the capital markets tanking, why is this still a good time to raise capital?

As an economist by training and a Venture Catalyst with Launch Funding Network (LAUNCHfn) and the Network of Business Angels & Investors (NBAI), I have been analyzing and assessing market trends for decades. This crazy economic roller coaster we are on now only reinforces what I learned. I watched the rise and fall of the dot.com investment explosion that ultimately imploded, which further went into a death spiral with the crash of big blue chip companies like MCI-World Telecom and Enron, which lead to increased government regulation on public companies. Money seeks a way to multiply itself. Think about every big “trend” where great wealth was created by the market makers and the early adopters of that “new” market opportunity, only to have it implode and cost the late entries and followers a lot of money - from the Savings & Loan bail out, Junk Bonds, and DOT.BOMB to the recent hedge fund frenzy and now the mortgage collapse.

So why do I think that good innovative companies can attract Private Equity Investment in this recession? I have 5 reasons:

1.  Sophisticated investors that haven’t yet participated in angel investing have realized that ALL investment classes are risky.  They think:  “With the collapse of the stock market and the real estate market, might as well invest in something I know is risky, but has potential to give 4 to 8 times more ROI!” Both new and experienced early stage investors are getting involved with Angel Investing as a way to rebuild their damaged portfolio.

2.  Angel Investors already know the early stage company’s value is at the bottom and should only go up. And if the company gets into trouble, they can more effectively impact the company’s operations and resulting increased value than they can with a public company. The investors can help with their experience and rolodex to grow the company.

3. Market Makers are going to be looking for new places to put money. Companies that can do a Direct Public Offering through the OTC BB market, with the new controls recently implemented, will be the next favored market place. It is easier to directly reach investors to create the demand for that stock. Furthermore, it provides access to follow on institutional investment capital and offers an easier exit for private investors.

4.  Individual investors have more opportunities through online communities to collaborate on early stage companies. Strong investor groups are forming and investor portals are designed specifically for investors to be able to identify, investigate and invest in early stage companies. This is similar to the way eTrade® provides access to public companies. Visit http://OurFundingPlanet.com to influence how entrepreneur and investors connect in this new community.

5. Investors will be looking at four Sectors because companies in these areas will be part of the driving force in our economic recovery. Businesses that:

a. offer feel good products and entertainment, because when people are worried, they want simple pleasures that make them feel good.

b. provide an improved efficiency to a company’s operations because businesses are looking for a way looking to increase profits.

c. deliver bio-med and life sciences innovations to the market.

d. are in the energy market – either as alternative energy or direct profits from carbon-fuels consumption.

Besides private equity investment being available for qualified early stage companies, there are many alternative lenders flush with cash to help early stage companies finance their contracts and cash flow. However, although we are bullish on the availability of capital, the criteria to measure the worthiness of a business to receive capital are slightly stricter. The money available is smart money. Competition for the available capital is stronger than ever. If the company isn’t properly prepared or if the CEO is seeking the wrong type of capital, their efforts will be futile.

 

About the Author:

LAUNCHfn offers an independent review of an entrepreneur’s business plan and capitalization strategy that will save CEOs time and money as they enter the capital markets. Also, find out what motivates investors with the free mini-course “Investor Funding Secrets” and learn how to meet with investors and qualify for capital from our thousands of investors and lending sources at http://launchfn.com.

Karen Rands, known inside IBM as "the Deal Maker,” left IBM in 2001 to catch the dot.com wave of a terrific start up and began her REAL education on the venture capital formation market. She launched Kugarand Holdings in August of 2001 initially as a finder for Venture Capital firms. Kugarand Holdings evolved into a full service provider for start up and early stage companies seeking venture capital that may come in the way of debt or equity.

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