Accessing Capital Update

In a recession, raising capital for smaller businesses and early-stage ventures can be challenging due to tightening credit conditions and limited financial resources. However, there are still some viable options available for businesses seeking capital beyond the family and friend’s round. Here are some options:

1. Banks and commercial finance lenders: These are the most approachable if you have a transaction that qualifies, but most transactions and their principals are unable to qualify for this type of financing based on capital needs.

2. Private equity and hedge funds: These are also approachable, but most have semi-rigid and very specific criteria that will disqualify most transactions. In many cases, these are control buyers of a business opposed to minority investors.

3. Family offices: These can be hard to access without an introduction.

4. Investment and merchant bankers: These are licensed and can market a transaction to their investor clients on your behalf. They are very selective, and the process can be very expensive. Many have minimum size qualifications well above the average transaction seeking capital.

5. Venture capital and angel groups: These are approachable and have more flexible structures, but again can be expensive and hard to identify who the right one may be. There are several networks in the market that are compliant and can be a resource that can match you to investors.

6. Brokers, finders, and intermediaries: These are the most available but create a number of compliance (regulatory) issues that create significant liability for the business principal and service provider. It is also very hard to qualify these service providers and if they, in fact, can help.

In addition to these options, businesses can also consider taking out a loan or line of credit when economic hardship is on the horizon. Non-bank lenders can also extend credit to a wide range of businesses. Another option is to self-underwrite a transaction using an exempt offering or registration, which can be a cost-effective mechanism and help principals truly vet their transaction early in the process, saving time and money on a transition that is unqualified or unlikely to succeed.

It is important to note that the lack of resources for raising capital is clear, and it is unclear when and if there will be any real relief in this area. However, businesses can work within the regulatory framework as it exists today or wait and see what the new rules may be.