Table of Contents
Additional Praise for The Handbook of Financing Growth, Second Edition
More than ever, we need to mentor the start-up, the entrepreneur, the early stage CEO. This book does just that and levels the playing field for business leaders at a time when financing is the holy grail.
Tom Snyder, Retired CEO, Remy Inc., and President, Ivy Tech Community College of Indiana
Our CPA and Consulting firm was founded based on the passion of entrepreneurship.
We started with nothing and have built a firm of 160 people,
including 25 partners and 4 offices in Northwest Florida and South Alabama.
Our clients are entrepreneurialweve coached and guided many of them
through financing and equity transactions. The resources in The Handbook
for Financing Growth, Second Edition are great assets for our practice. Ive
personally met Kenneth Marks, working together on an engagement, and
I can see his passion, thoroughness, and attention to detail throughout the
book. We use it as a training tool to help focus our partners and managers
on being trusted advisors who deliver notably excellent service. Thanks for
this practical wealth of knowledge!
J. Mort OSullivan, III, Managing Partner, OSullivan Creel, LLP CPAs and Consultants
Our company has been largely transformed through the use of the Growth Strategy Navigator described in this book. It has provided a consistent framework from which we develop both our long-term strategic business plans as well as our annual business plans. If it is growth that you seek, this framework will help your organization deliver results once thought not achievable. The Handbook of Financing Growth, Second Edition has given us a common language and process for tackling major initiatives, as well as an actionable roadmap for executing our plans overall.
Robert Barker, President, Bob Barker Company
Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers professional and personal knowledge and understanding.
The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation, and financial instrument analysis, as well as much more.
For a list of available titles, visit our Web site at www.WileyFinance.com.
To Kathy, Lauren, Lilly, Jenna, and Samuel in support of doing Gods will
Preface
Over the past two decades, access to capital for emerging growth and middle-market companies has vacillated based on the ebb and flow of the broad stock market and the liquidity and tightness of the credit markets. Even through the boom and bust of the Internet, availability was not constrained as it has been for the past nine months. As we update this second edition of the Handbook of Financing Growth, we are experiencing a period of financial challenge not seen since the Great Depression... and while there is arguably the greatest amount of capital ever focused on emerging growth and middle-market companies, literally hundreds of billions of dollars, the hurdles to accessing this capital have never been higher.
The difference today is one of gaining access, not just one of getting a better deal or better terms. This applies to both debt and equity from a wide range of sources: from commercial banks to asset-based lenders to specialty finance companies; from growth equity investors to venture capitalists to strategic partners.
In spite of the current economic turbulence, the authors of this handbook continue to share an enthusiasm and positive outlook for the growth and vitality of Americas emerging and middle-market companies. And we believe that for those companies that are proactive and well positioned, there is likely capital to be found. For those that need help getting their house in order and need to strengthen their position and focus, we have added a discussion in several sections with tools and ideas in hopes of assisting and guiding you, your team, or your clients in the right direction.
Within these pages, we introduce the full spectrum of funding alternatives available to emerging and middle-market companies, and we present practical strategies and techniques as you consider capitalization and the growth of your or your clients company. In addition, we have bolstered the content on preparing a company for a transaction and introduced new sections to specifically address acquisitions and exits. Given the gyrations in the commercial banking world, we have also added a number of new cases to highlight viable alternatives to traditional bank debt.
Our approach to funding a company, acquiring a business or creating shareholder liquidity is process baseddriven by the use of funds, the stage and industry of the company, and the investor objectives, always with an eye towards creating value. We have written this handbook primarily from practical experience and empirical data; and we have included some basic corporate finance theory that is helpful as a foundation in understanding some of the topics discussed within the body of the book.
The focus is on companies with revenues ranging from zero to about $500 million, deemed start-up through middle-market. Representative companies are those in the INC 500 and the Forbes Small Business 100, venture-funded companies, and those many thousands of companies funded with friends and family money and hard-earned savings and sweat equity.
We find that many competent and successful businesspeople commonly misuse terms and have misconceptions about basic aspects of corporate finance. Many times we hear the leader of a company discussing the alternatives for funding the next stage of growth in the business and mentioning venture capital. The fact is that very few companies are a candidate for venture funding and even fewer actually obtain it. Based on anecdotal data, we estimate the funding rate of business plans submitted to venture capitalists to be in the 0.2 percent to 0.5 percent range, or 1 out of 500 to 1 out of 200 companies. Even with such a low funding rate, do not give up! We also hear stories from entrepreneurs who just do not understand why their bank will not lend them the money they need to hire the next round of employees required to support their growth. If only these folks understood the role of the bank or the type of companies that venture capitalists actually invest in; if they only understood the full range of financing alternatives and how to obtain the right type of funds for their needs at the right time.
This handbook is meant to address these questions and to provide the basics of corporate finance as well as to provide strategies with which to fund all types of viable operations at the various stages of the company life. In addition, we drill down into the details to illustrate how to execute a financing plan. We desire to provide the reader a solid foundation and perspective from which to address capital structure questions and the financing needs of the company.
You will note a series of recurring themes with regard to financing. These apply both to those who are operating managers reading this handbook and to those advising and supporting the company. These themes are a bit of motherhood and apple pie, but they are central to successful fund-raising: