Something for Caribbean business owners to consider when building their business in these tight economic times is an Angel Investor.
For example, Angel Investors often operate as high wealth accredited individual investors, or operate through clubs of similar types who then make joint investment decisions.
Many Angel Investors seek equity positions in high-growth firms. Often these firms are segmented by industries as well. Angel Investors typically provide funds in the range of $300,000 to $5 million dollars, in exchange for up to 50 percent equity of the firm being funded. In many cases, the Angel Investor may also require an active management role in the firm.
Some of the benefits of such an arrangement are that for firms with high growth possibilities, the barriers to profits can be missing capital in the start-up phase. This can create limitations on what or how the business will perform.
For example, I know of a manufacturing firm seeking $10 million dollars to complete the build out of a factory. The firm once the factory is completed has existing Purchase Orders worth $50 million dollars. However, since the firm is a start-up from traditional lending standards, the capital required has to be obtained through non-traditional means. In essence, this firm can not qualify for debt financing options such as lines of credit, or other options which would allow the principals to maintain complete control of the company.
Therefore, in order to pursue the upside, $50 million dollars in sales, the principals' must explore equity financing options where due to the higher risk, the investors take on a greater reward.
Sadly, less than 10 percent of firms are able to secure venture capital via Angel Investors. Why such a low percentage? The number one issue has to do with the experience and planning of the owners. The typical barrier to success includes the principals' having specialist skills, rather than operational and management skills in a structured organization. That often means that the principals are not fully vested in the business model because they do not really understanding all of the functional elements of their business. Their core competencies are often related to a past role as an employee performing some specific job duties, but not as a division president where profit and loss responsibilities are part of the core duties.
Consequently, when this experienced worker launches a firm, the business model can be lacking elements that were covered by others within an established organization at his or her prior job.
Another issue arises when the business model is reasonably developed but on-going strategic planning and business forecasting is lacking. Then there are cases where the company is truly in a growth industry but demand for its products or services exceed the internal capabilities to deliver.
Remember the clothing manufacturer, Cross Colours? This firm got off to a robust start, yet failed to properly develop internal controls and infrastructure to manage operations. Consequently, the firm could not deliver merchandise on retail schedules, nor were they able to maintain quality standards. Eventually, one too many missed delivery dates and the retailers pulled out and cancelled orders. Yikes! Can you imagine cancelled orders for already produced merchandise? That's a definite formula for bankruptcy.
I hope you took the time to visit the Recovery.Gov website and explore possible assistance options for your business. Until next time, prosper!
Stephanie Ardrey is a writer for Carib Press.
Photo from Wikimedia Commons
Read more stories from Carib Press »
Leave a comment