|
|
From
banks to VCs, there's plenty of cash out there for entrepreneurs. But that
doesn't mean the road to finding financing has gotten any shorter or
smoother.
Bige Doruk founded Gaia Power Technologies Inc. at a doubly good time.
Interest in energy storage and management products has soared in step with
record-high oil prices. And opportunities to finance the growth of her
New York City
company, which manufactures devices to help businesses attain reliable
backup power and reduce overall energy costs, have rarely been better. At 4
years old, the company has secured a total of $4 million from three separate
financings involving a combination of angel and VC equity investments, a
bank loan, and a grant from a state-government-backed research fund.
Gaia's
financing run began in 2003 with a $1.5 million product-development grant
from the New York State Energy Research and Development Authority. The next
year, a $250,000 loan from a consortium of large banks called the New York
Community Investment Co. helped complete the product development effort.
Last summer, a group of VCs and angels made a $2.25 million equity
investment in the $3 million firm to expand operations and marketing.
"It's been great for us," Gaia's 38-year-old CEO says. "We
didn't have to tap into the capital market and give up equity without having
a product and a market."
Cash
Craze
From banks to VCs, financiers brim with funds, and investors are just short
of frantic to put their money to work. "It's amazing the amount of cash
that's out there," says Jim Ellis, a management lecturer at Stanford
University's graduate business school who says lenders are willing to fork
over "imprudent amounts" of capital. "We're looking in the
rearview mirror and can't remember a debt market like this."
The
view looks the same in the equity markets. "There's a massive need to
deploy capital in a way that's productive," echoes Mike Simon, 41, CEO
of LogMeIn Inc., an 80-person Woburn, Massachusetts, remote control software
company that has raised $20 million in three years, including a $10-million
VC round last November. "If you have a good business, you can get
venture financing very easily."
Commercial
banks, the largest source of financing for entrepreneurial businesses,
remain less than universally welcoming, however. Charles Ou, an economist in
the Office of Advocacy at the SBA, describes the bank climate as only
"adequate" for most loans. Ou sees one bright spot in the growing
number of credit lines and business credit cards from major banks.
"Just think of [all] the ads you see on TV," he says.
When
Linda Pinson thinks of those ads, her tone turns wry. "There's so much
hype," says Pinson, owner of Out of Your Mind . . . and Into the
Marketplace, a
Tustin
,
California
, publisher of business-planning books and software. "[Entrepreneurs]
get mistaken ideas about what it takes to get money," says Pinson, who
serves on lending committees and boards.
Borrowers
still need about as much collateral, dollar for dollar, as they hope to
borrow from a bank, Pinson says. They must provide historical and projected
financial statements showing the company can repay the loan with internally
generated funds. Banks usually require personal guarantees, and even those
may not help if your credit score falls below 700. "If you're in the
habit of getting behind on other things, they figure you're going to get
behind on paying your loan," Pinson explains.
Local
and regional banks are most likely to cut entrepreneurs some slack, says
Larry Bennett, director of the Center for Entrepreneurship at
Johnson & Wales
University
in
Providence
,
Rhode Island
. "There is still a huge difference in banks' receptivity to lending to
entrepreneurs."
|
