Jonathan Craig Rich, formerly of National Securities in New York is an experienced investment banker who is focused on raising capital for the growth of companies in the healthcare, technology, and consumer sectors. Jonathan also helps these companies explore M&A pathways, joint ventures, and licensing agreements. In the following article, Jonathan Craig Rich discusses and demystifies capital processes for small businesses around the United States.
Unlike a lot of modern business discussions, capital raising isn’t a new topic. However, it certainly never gets old, as startups continuously fall into the inevitable red zone due to undercapitalization. Entrepreneurs constantly struggle to navigate the ever-convoluted investment industry in all its smoke-and-mirrors infamy. With confusing terms, conflicts of interest, and the nagging worry of keeping their businesses running smoothly during the process, capital raising has always been a murky world.
However, that time has come to an end. Helpful-hearted individuals in the industry are working to demystify the process so that more startups can thrive.
Jonathan Craig Rich on the Truth About Capital Raising
Jonathan Craig Rich, formerly of National Securities in New York says that the investment industry has remained generally stagnant for years. Those involved are utilizing the same processes (math and all) to value companies and define successful working relationships. Because of that, it isn’t anywhere near as clever or in-depth as many entrepreneurs seem to believe.
Demystifying the process, therefore, relies on making unfamiliar terms familiar.
Explaining the Primary Capital Sources
Jonathan Craig Rich, formerly of National Securities in New York reports that, despite the myriad of options that businesses have for raising capital, experts say the majority can be categorized into one of the following primary sources:
- Debt finance — People provide an entrepreneur with money in return for getting it back, plus interest, within a specified period.
- Equity finance — Investors give an entrepreneur money in return for a say in the business operations and a percentage of the profits.
- Grant funds — Authoritative entities and government agencies provide grants to businesses that align with their current initiatives/programs. They usually align within key policy areas, such as tourism or the environment.
Some of these capital sources are easier to access than others, but every entrepreneur’s best avenue will depend on the type of business they are aiming to start, as well as the probability of securing funding from said source.
That said, Jonathan Craig Rich, formerly of National Securities in New York notes that many end up choosing to work from the more effortlessly accessed to the trickier processes to save time and stay efficient. To do that effectively, startups should follow this outline:
Capital Raising Starts with the Founder
Whether using proceeds from selling a personal asset, taking out a personal loan, or digging into their savings, founders should be prepared to provide the first bout of capital. Everybody who invests from this point forward will want to see how much the founder themselves has put in. Thus, it needs to be a notable amount, otherwise nobody else will think the business is worth their own time.
Then Comes the 3Fs
Jonathan Craig Rich, formerly of National Securities in New York explains that cash influxes here are often emotionally driven, as they come from friends, family, and fools (3Fs). It’s easy to raise, but entrepreneurs should acknowledge that if things go wrong, they will have to make up for it.
Target a Working Partner Next
While harder than the former, lots of outsiders are interested in those who are just starting a business. So much so that entrepreneurs will often find it effortless to attract somebody willing and capable to offer funds for securing shares and a job in the venture.
Jonathan Craig Rich, formerly of National Securities in New York notes that experienced startup builders recommend taking on short-term working partner funding only. Partnerships are notorious for growing messy, so having a well-planned exit strategy should be considered high priority.
Time to Find Suppliers
These are the true commercial partners in any business, as they’re interlinked — supplier success depends on the success of the companies it aligns with.
Leveraging this need proves fruitful for entrepreneurs looking to secure 30-day credit terms that offer 60 days of free finance. In addition, if the startup sells suppliers’ products within this timeframe? They never have to personally fund the inventory.
Next, Acquire Customers
Jonathan Craig Rich, formerly of National Securities in New York explains that small businesses often forget the fact that customers are a key source of capital. Kickstarter and other crowdfunding options have made it easier than ever to go viral and attract countless donations and pre-sales.
After, Overdrafts and Term Loans
It’s often quite easy to obtain an overdraft. Banks readily consider this option for startups, since it’s payable on-demand and comes with higher interest rates.
Term loans are harder to get, but they are also remarkably useful for entrepreneurs. Although, they’re unlikely to be successful unless they own an asset that is equivalent to the value of the loan.
Finally, Grants
Jonathan Craig Rich, formerly of National Securities in New York explains that these are the hardest to secure, but they remain the best capital raising source. With no interest, profit share, or repayment, grants are truly a dream for those who could potentially qualify. The hard part, of course, is actually qualifying; entrepreneurs need to find a way to align their businesses with current government initiatives to have a chance.
