Combinations of Finance

Successful Entrepreneurs Use Combinations
Unlike oil and water, debt, equity, self-funding, and external funding do mix well. In fact, it’s an entrepreneurial secret. The best managed companies mix their financing sources and choices. Which to use, and when, becomes a matter of individual option, although there are some pretty well established precedents. Founders’ personal investments, including both personal assets and family and friends’ equity and loans, are usually what finances concept or seed stage companies.

Development or Start-Up stage companies commonly seek funding from venture capital firms, early-stage, and various grants from both foundations and government sources.

Early/First-stage or production companies may receive financing from bank loans, leasing companies, and research and development partnerships (for incremental product development). Strategic partnerships are often entered into at this stage with potential customers, suppliers, and manufacturers.

Companies at the next stage of ramping up (Second Stage), which is full-scale production and expanded marketing, often receive additional dollar injections. These come from second and larger rounds of traditional venture capital, larger companies that are looking for product distribution opportunities, institutional investors, more venture leasing companies (for manufacturing equipment), and additional strategic partners (often seeking secondary manufacturing and distribution rights both domestically and for foreign countries).

After this stage, the entrepreneuring company has some heavy choices to consider. Here is where the harvest point (Third and Forth Stage) is a natural if the plan has been to build a company and then sell out. They still need more money (what’s new), but their choices are a lot broader: more venture capital, bridge or mezzanine financing while going public, being acquired (perhaps by one of the earlier-stage strategic partners), or selling out to a cash-rich company.