Читать книгу Investment Banking For Dummies - Matthew Krantz - Страница 51

When a company is young, financing can get pretty dicey. It’s not unheard of for very early investors to pay for equipment and salaries of employees with any money they can get their hands on. Charging up credit cards, hitting up family members for loans, and tapping retirement savings are all ways that an entrepreneur with the burning passion to start a company gets the process started. Starting a company takes a tremendous amount of money.

If the company proves to be successful, the options for raising money, or financing, grows. Prior to going public with an IPO, a growing company may consider a few options to raise money, including the following:

 Venture capitalists: Venture capitalists are investors who pool money from other investors looking for very high potential returns, and are willing to suffer huge losses in the process. Venture capitalists take the money they gather, usually from large institutions like insurance companies or pension funds, and bet money by buying stakes of young companies that have great prospects. Although many of these bets don’t pan out, if the venture capitalists hit it big with a few of their bets, the returns can be enormous. You don’t need to invest in many Googles (which ultimately sold stock to the public in an immense payday for venture capitalists) to make the gambles worthwhile. Although venture capitalists can be a critical place for young companies to raise money, it comes at a steep price if the company pans out. The venture capitalists end up owning a big slice of the company, which reduces the ultimate payout for the entrepreneur.

 Bank loans: Commercial banks are in the business of lending to companies that need capital. Periodically, a bank may extend a line of credit to a small business, especially if the business is stable. Banks, though, tend to be skittish and won’t lend if there’s even a scent of risk with the company. Internet companies, which have little in the form of assets, for instance may be turned away for bank loans because there isn’t anything to be used as collateral.

 Crowdfunding: The idea of crowdfunding is very new but likely to become more important. Currently, an entrepreneur with an idea can use websites like Kickstarter (www.kickstarter.com) to explain to the public what her idea is and how much money she needs to make it happen. Consumers interested in making the product come to life are able to pledge a dollar amount on the crowdfunding site. As soon as enough money is raised, the company can use the cash to build the product. Crowdfunding is currently only a way for consumers to donate money to new businesses, not invest in them. Typically, these crowdfunding donors are given a token of appreciation for their contributions, usually early dibs on the product after it’s released. Currently, though, companies aren’t allowed to sell stock using crowdfunding. That’s changing though. The 2012 Jobs Act contains a provision that opens the future to the idea of stock-based crowdfunding where companies can sell stock to the public. The SEC is tasked with the job of allowing companies to raise money with crowdfunding, while protecting investors.For much more information on crowdfunding, check out Crowdfund Investing For Dummies, by Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion (Wiley).

There may be options for companies not ready for an IPO to raise money. But at some point, the companies with the best prospects outgrow the venture capitalists, don’t want to pay the onerous terms of bank loans, or need more capital than can be raised casually. When these things happen, it’s time for the company to go public. Going public is a relatively long and costly process that requires preparing statements for regulators and investors, getting the company’s story out, and actually selling the shares.

IPOs tend to be lagging indicators, meaning investors are more willing to take a wager on a newly public company when the broader stock market is doing well. IPOs tend to ebb and flow quite a bit, as Table 2-2 shows.

TABLE 2-2 Number of U.S. IPOs, 2014–2018

Year	Number of U.S. IPOs	Proceeds Raised
2018	192	$46.9 billion
2017	160	$35.5 billion
2016	105	$18.8 billion
2015	170	$30 billion
2014	275	$85.3 billion

Source: Renaissance Capital ( www.renaissancecapital.com )