What are The Options For A Small Company That Needs To Raise More Capital, But Cannot Dilute Its Present Shareholders Any Further?

Debt if there are assets or cash-flow or a “Play or pay” round. A tactic to force people to ante up a pro rata share because the price is lower than the last one (down round) and so those that do not put in their pro rata share are diluted significantly.

Think about it. If you bought in at $1.00 and the company made little progress, but still has lots of potential, then if the Board/CEO offers new stock at $0.30 you almost have to buy if you still believe in the potential or just the new money will get 3X more stock for their new investment, all effectively taken from the portfolios of the people that did not participate in the round.

Not the friendliest tactic, but sometimes warranted if there are no easy sources. And it will also save the CEO and team months of potential work, but not requiring newer investors - who might force the price down based on the lack of progress anyway. See my blog for many more hints and tips on raising capital.

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Another option is a royalty financing that offers the investor a percentage of sales until their investment plus a profit is paid to them. This can be two or three times their investment, and could be over multiple years.

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With the right percentage, you can tune the cash-flow to grow and still pay the royalty. This structure is lower risk than equity because they start getting paid royalties immediately. And they have a fix upside for that lower risk too.

 

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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.

Call (619) SCALE06 or email info@AirTightMgt.com for a complementary strategic consultation