As a graduate from business school and a growing entrepreneur, I have become extremely familiar with the term “raising capital.” Between the classroom lessons and the entrepreneurial workshops, it appears as if the process to raise funds is as systematic as building something on an assembly line. After your personal expenses are exhausted, it seems to be unanimous that the first stage is always the 3Fs, or family, friends and fools (those willing to give you money based on your relationship). The second stage appears a little less definite. Depending on what your business is or how much capital you need, you either can go to a bank for a small business loan, or you can proceed to solicit angel funding. The third stage is the point in which I question some things.
I find myself asking: Is Venture Capital the logical next level? I understand that this has been the traditional route for high-growth companies, but are there other options? Rarely does an entrepreneur receive information about alternative financing sources. It seems as if the negative stigma attached to accepting VC funds is that they require too much equity demand too much control. Personally, I think that it is fair to give up equity and control for the funds that can truly take you to the next level. Anyway, as I was saying before, I wonder if their is another 3rd option. I was watching a very intriguing interview with a successful entrepreneur in which he said something that I have never heard before. After receiving angel investment, he needed another large injection of capital. However, he didn’t turn to VC firms. He used pursued a strategy known as a “reverse merger” (reverse IPO). This is a rarely-used strategy that involves one company buying a public company (typically a shell company) in an attempt to bypass many of the legal work of going public. This option allows a company to raise capital through the public markets. After learning about this, I found myself asking how many other methods are available to raise funds. I know that a reverse merger doesn’t apply to most companies, however its a option that you don’t hear much about.
I am simply stating that I wish the discussion was held that included all the available options of raising funds, from start to finish, beyond traditional methods. What do you think? Are you familiar with innovative and unique options to receive substantial financing?