Raising Money

Written by William Cate


Raising Money

It isn't cheap. It isn't easy. The winners inrepparttar rush for risk capital arerepparttar 111925 CFOs (Chief Financial Officers) who understand how to playrepparttar 111926 money game.

Private companies seek risk capital from American Venture Capital Firms (VCs) and wealthy individuals called Angel Investors. A 2003 study shows that U.S. Domestic company odds of raising money from Venture Capitalists are less than one business plan in ten thousand will be funded. The initial VC capitalization will be for less than one million dollars andrepparttar 111927 Venture Capitalists will want at least halfrepparttar 111928 equity inrepparttar 111929 funded private company. The estimate ofrepparttar 111930 odds of private non-American companies raising money here are less than one in twenty five thousand.

Costs

What does it cost to seek risk capital for a private company from American Venture Capital Firms? Our Contact Cost Model gives you a rough way to estimaterepparttar 111931 direct costs of raising risk capital. Your firm will need to prepare, package and mail a business plan to prospective investors. A professionally written business plan should cost your company about $20,000. Assuming that you use First Class mail and not an overnight service withinrepparttar 111932 United States, your cost to mail your business plan will be at least $5 in printing, packaging and mailing for each business plan sent to a prospective investor.

You should follow up your business plan mailing with at least one phone call. That phone call will cost your company at least four dollars in salary paid to a professional telemarketer. If you could contact 10,000 Venture Capital Firms and Angel Investors your costs will be about $115,000 and your odds of success are about 50%. If you contact 5,000 potential investors, your costs are about $65,000. Your odds of success would be about 33%. There probably aren't 25,000 American Venture Capital Firms and Angel Investors willing to risk their money overseas. If you could find and contact 25,000 American Venture Capital Firms and Angel Investors, your costs will be about $287,500. Your odds of success would be about 50%.

Contact Cost Model

Using our Contact Cost Model approach, you can easily determine your fund raising costs and odds of potential success with whatever number of risk capital contacts that you make. If you spendrepparttar 111933 money to contact enough investors, you'll find someone to risk money in your company. Often,repparttar 111934 costs of your search exceedrepparttar 111935 risk capital raised by your company.

What does it cost to seek risk capital as an American Public Company? Your potential investors are merchant bankers, mutual funds and wealthy individuals. They more readily invest in your public company because public company speculation offers them liquidity and leverage. Liquidity, because afterrepparttar 111936 legally required holding period, they can sell their shares intorepparttar 111937 Market. They don't have to wait until your private company is profitable to make money. Leverage, becauserepparttar 111938 share price of most American stocks is a multiple ofrepparttar 111939 balance sheet value of that company. Your public company could fail, but your private placement investors would still profit.

Six Ways Under Your Nose To Finance Your Home-Based Business

Written by George A. Parker


There are lots of ways to get additional capital to expand a home-based business. But before you look outside for financing, leavingrepparttar decision about your company’s progress and merits to someone else, consider these six ways under your nose to finance your home-based business:

Personal Savings

Savings are easy to tap and involve no paperwork.

The negatives: if you userepparttar 111924 money in your business, it eats into your safety reserve and is no longer there for emergencies. It diverts funds from a very low risk investment to a high one.

Whole-Life Insurance

Whole life policies accumulate tax-deferred cash value that you can tap for your business. Butrepparttar 111925 only way you can tap this cash without paying taxes is to borrow against your policy. As long as you keep your policy intact and pay premiums when due, loans remain tax-free.

The negatives: you will be converting a low risk investment into a high one; if you decide to terminate your policy or if you default on repaying your loan, taxes will be due on all cash value accumulated underrepparttar 111926 policy; if you die before your loan is repaid, any distributions to your beneficiaries will be reduced byrepparttar 111927 amount of your outstanding loan.

A Loan from Your 401-K Plan

You can borrow up to $ 50,000 ofrepparttar 111928 money you have saved under many 401-K plans. There are no credit checks. Interest is usually a percentage point or two aboverepparttar 111929 prime rate andrepparttar 111930 interest that you pay back torepparttar 111931 plan will be tax-deferred torepparttar 111932 plan. Most loans are repayable out of salary deductions over five years.

The negatives: you will have less money invested toward retirement;repparttar 111933 dollars used to repayrepparttar 111934 loan will be after-tax dollars withheld from your paycheck; if you fail to repayrepparttar 111935 loan,repparttar 111936 IRS considers your failure a premature distribution -- you will be charged taxes onrepparttar 111937 borrowed amount plus you may be assessed a 10% early-withdrawal penalty.

A Home-Equity Loan

These loans do require that you apply and be reasonably credit worthy. You generally can borrow up to 80% or 90% ofrepparttar 111938 equity value of your home. Interest on these loans is generally tax-deductible.

The negatives: you will reducerepparttar 111939 equity value of your home byrepparttar 111940 loan amount; you will be diverting funds from a relatively safe investment to a high risk one; if you default, you put your house at risk of foreclosure. Think very carefully before using this form of financing.

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