We are coming up on earnings season for Q2, so look forward to that starting next week. Calix announces on the 28th and others will follow. I have been following the public tech companies headquartered here in Sonoma County and posting analysis of their results. Given that Cyan is going away, I will be adding Autodesk to the list of companies that I post about. If there are any other companies that are in the North Bay and public that you want me to review earnings for, just let me know!
Things seem to be going reasonably well in the business world generally and that has led to a relatively larger number of new companies. Startups like business coaching generally, but the big issue for them is startup capital and then the ability to manage their capital as things go along. There are many different types of companies and therefore many different kinds of capital formation that they can go through.
Many “normal” companies go through the debt route through something like an SBA loan. There are other hard money loans, but the SBA program is by far the largest. This is a form of debt financing that allows for founders to be able to get money for companies that don’t qualify for the underwriting guidelines of banks. Banks may be the actual place that handles the loan, but without the government guarantee, there would be no loan. Friends and Family can also provide this form of early debt. It is extremely wise that formal documents be drawn up because it will help keep everybody friendly.
But there are also specialty lenders for specific business types. An excellent example of this is Banker’s Healthcare Group, for the Healthcare business. They provide Loans and other services to their clients. The advantage of one of these kind of companies is that they offer services across a broad range of needs. These companies also understand the business issues associated with specific industries. That means that applicants will have a simplified process of approval and can have a long term relationship with a provider of many services.
Now when you are working with a debt vendor, they are going to want to have some view of being repaid with interest. When you present information to them, that is what was they care about. Some level of surety to be repaid.
The other kind of funding is called equity. In this case, you are selling part of your company to somebody for money. Venture Capital works that way. But to be clear, what these vendors care about is valuation. Valuation is how much company is worth. Your investors want to increase the valuation of your company. That is how they will get their money back. In general, they will want to sell their stake at some point in the future for more money. They may also want to get a percentage of your profit in profit sharing as a way to get some money back while they maintain ownership.
Most companies will have a combination of both. Even equity companies often start with debt. It is hard to peg a valuation for a company at its very start. There is often debt that is convertible to equity involved. So, think about being flexible in how getting funded happens. Look for money that can provide additional value. Having people that you can work with that have more services or industry knowledge, they add value beyond the money.
If you have any questions about these issues, let me know. I can help you or people you know raise money.
Have a great day!
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