CapitalraiseInsights


In this post we summarise some insights to close the postings on raising funds.

Entrepreneurial Insights

It is evident that there is no optimum capital structure for all entrepreneurial ventures. The optimum structure for any venture depends on the environment, the managerial preference of owners and the growth prospects of the venture. A financing gap is evident for entrepreneurial ventures as debt financing is not easily accessible. However there are methods of raising equity finance from friendly shareholders and these include private placements, rights issues and initial public offerings. A carefully controlled release of equity without loss of control of the enterprise is critical, as demonstrated by Kingdom Bank. Finance mobilisation can be linked to strategic purposes e.g. developing synergies from strategic union and creating strategic options for the venture. However Royal Bank demonstrated that shrewd entrepreneurs can still utilise debt financing.

Entrepreneurs should be flexible in their financial strategy in terms of raising capital. There is need for a strategy to raise entrepreneurial capital at the different stages of the business lifecycle. What works at inception may not work during later stages.

Some sources of capital may not be practical in certain countries and economic cycles. For example venture capital and lease finance were not practical sources of funds within the banking industry during this hyperinflationary period. As Professor Donald Mitchell of Rushmore University notes:

“Venture capital is expensive because investors are seeking huge gains. Fields that attract venture capital soon have too many competitors. Venture capitalists are quick to fire entrepreneurs who fail to meet their business plan goals. Firms without venture capital learn how

to create leaner, more competitive businesses that can become highly prosperous.”

He further insightfully observed that,

“The interests of entrepreneurs and their enterprises often diverge. Entrepreneurs prefer control, keeping their jobs and maximizing personal wealth. The enterprises may use too much debt, take on too much risk and not be well enough capitalized as a result. Most enterprises eventually move past the stage where the entrepreneur is the controlling shareholder. In those stages, liquidity, risk management and keeping cash flow positive start to become much more important”.

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