Resources & Publications

In the current competitive marketplace, capital infusion is a necessary requirement for the successful maturation of any business. Raising capital has historically been allocated to research and development of new product lines, updating plant and equipment, scaling personnel and geographic territories, launching new business initiatives, and acquiring ancillary and synergistic businesses.

Yet in today's recessed economy, access to capital can be much more challenging than it was three years ago. With the stock market booming in the late 1990's due to the emerging technology sector, investors were lining up to gamble on high risk dot com ventures that had demonstrated a trend of 100x or more return on investment. Now that the initial public offering market has slowed to virtually a standstill, and the stock market itself has corrected itself drastically, those with private capital are not as easy to find.

In the venture capital world, there are basically three types of investors. "Friends and Family" are a category of investor whose definition seems self-explanatory (typical investment range is $1000 to $25,000 per investor). "Angel Investors" are usually wealthy individuals whom are looking to infuse promising companies with seed money beyond the friends and family round (typical investment range is $10,000 to $150,000 per investor). The last category are institutional investors or "Venture Capitalists" ("VC's") whom usually only consider mezzanine level investments with companies that have had strong revenues and operating histories of at least three years, and are in an industry that has a strong trend for growth.

The most important factor in determining whether or not a company will be able to secure private funding is the experience and successful history of the management team. Although most entrepreneurs think their idea will hit "hockey stick" financial projections, the fact is that no one has a truly original idea, and that these investors each see thousands of business plans a week with similar ideas. Therefore, a proven track record of successful execution by a management team is the key to getting consideration by the investment community.

Finally, companies should be wary as to whom they are pitching their company for capital infusion. Remember, true investors don't want to control your company, they want to just make money off their investment. Anyone wanting controlling interest of a company in initial funding demonstrates their greed, and that they probably are not the person with the actual money. Introductions by professionals (e.g. lawyers, accountants, financial advisors) are perhaps the best way to get considered by true professional investors. It is advised that a company do some due diligence on the assets and background of potential sources of money that are not pre-screened or have a long standing history in the investment community. Also, there are other alternatives than private equity financing to obtain access to capital. All avenues should be explored with a competent professional in order to determine the most cost-effective course for one's business.

David Michail has been a business and corporate attorney since 1996. Mr. Michail has also worked for a $70 million funded venture capital arm of a publicly traded company in 1999, evaluating investment opportunities in the technology sector. This article is intended for informational purposes only, and shall not be construed as legal advice. For more information about strategies in securing capital, please feel free to contact Mr. Michail at (310) 559-4333 or at david.michail@michaillaw.com.