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So You Want to Raise Capital

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For those business owners who want/need to raise capital, there are more types and sources of funds than ever before. Juxtaposed against that positive backdrop is an economic climate that has made investors skeptical and reluctant to commit the capital. Post 2007/2008, numerous factors have converged to increase the difficulty of raising capital of any kind.

The current impediments to securing enough debt and/or equity are the following:

  1. Dodd-Frank regulations on financial institutions. Not only are the regulatory oversights and requirements (e.g. reserve amounts) much more onerous, but also are the low interest rates and lack of returns for the senior lenders.
  2. While there are more mezzanine lenders, and the rates have dropped in the last two years, the cash flow coverage parameters have increased and stifled the funds outflow. Mezz money is most often used to supplement senior debt for acquisitions of companies. In some cases, a strong income statement can support the application of this capital for continued growth.
  3. Equity sources, both preferred and common, are rather reluctant participants, especially for startups. Venture capital preceded by a F&F, round (friends and family) is still the most effective way to raise capital for newly formed companies.

The industries which are currently receiving the most interest and funding are healthcare, software, food products, medical devices, and energy.

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