Gaining Capital without Losing Control

From Forbes

A nice quick read from Jim Casparie, a founding principal of Angel Strategies (the first national organization for angel investors) about convertible notes.

As discussed, this is a great way for newish companies, which need an infusion of capital, to raise funds without having to prove that your growth will actually occur. An investor may be willing to lend money, with a belief in some upside. In the meantime you are paying them are regular debt return in interest. But at their option (in the case of good performance or when a venture capitalist is coming on board) to convert their investment to equity at a favorable price. In effect, you can price the conversion to get the maximum at the conversion date, say in two years when things are singing along! In the meantime the note should have an interest rate below what you would normally pay without this option.

Your CFO should be aware of these types of options as you approach the market for funds.

Equity Might Be Out There For You

In my Angel discussion last week, I discussed the slow-down in angel investing in 2007, presaging if not anticipating the slow-down in the financial markets this year. Apparently, while following more cautious principles than in the internet hay-days, the professional investing markets are looking forward, and making investments in selected sectors. As discussed in James Flanigan's Entrepreneurial Edge article today, equity capital is available for the right story.

One sector discussed is mobile communication devices and related software. This is clearly a growing industry in the US and something that will need continued investment. It promises solid returns for early investors, and the professional investment firms, including private equity and venture capitalists are focusing here. Likewise, "green" technologies are getting favorable attention.

So it does seem that it's harder to raise debt these days, ergo , if you have a candidate do seek out the professionals (as long as you have a technology or "green" startup, that is)!