These days, there may be more capital than ever available to small, growing companies, but--as you can see from the articles in this month's cover package, "How to Finance Anything"--you need to be tough, skeptical, and well-informed when trying to obtain it.
Tough, skeptical, and well-informed is actually a pretty good description of our finance editor, Jill Andresky Fraser, who came to me recently with senior editor Martha E. Mangelsdorf to propose that we do such a package. They'd been watching developments in the private-equity markets while covering capital and finance in the Hands On section of the magazine. Something big was going on, they argued. There were fundamental changes occurring in those markets, changes that were going to outlast the current hot market for initial public offerings.
What's happening is something Inc. predicted more than 10 years ago, when we wrote about the private-equity markets as the last "unrationalized" capital markets in the United States. By that, we meant that while plenty of capital was available, and plenty of private companies were in need of it, there were relatively few mechanisms for bringing the two together. Those mechanisms are now emerging as more and more people and institutions see the opportunity to earn significant returns by investing in small, growing companies early in their life cycle.
Fraser herself catalogs some of the new forms of small-company financing in the article that introduces the package. Other pieces examine more-conventional sources of capital and find that practices there are changing as well.
The overall message is, do your homework--and choose your counsel carefully. "In a financing environment like this one," notes Mangelsdorf, "it's more important than ever that entrepreneurs have top-notch advisers who can help attract top-notch capital."
As Silicon Valley goes bonkers over stock options and a growing number of big companies follow suit, there has been a steady stream of articles about how options offer employees a fantastic opportunity to get rich quick. Few of those articles have probed the effect of options on companies, however, and none has asked what seems to us the most important question: Are options still fulfilling the purpose they were originally developed to serve? That is, are they helping companies attract and keep good people?
In " Motherhood, Apple Pie, and Stock Options" senior writer Edward O. Welles offers some unsettling answers. He shows that, in places like Silicon Valley, the extensive use of stock options is actually undermining the ability of some companies to retain employees.
Interestingly, most of the problems are related to the volatility of stock prices among companies that either are publicly traded or are moving toward an IPO. Private companies can still make stock options work the way they were intended--which is ironic, considering that many people think you have to be public, or going public, to be able to offer options at all. For those people and others, finance editor Jill Andresky Fraser provides a primer on the use of stock options in this month's special edition of Hands On (see " Know Your Options").
- Contributing writer Phaedra Hise looks at the benefits and pitfalls of credit-card financing.
- Finance editor Jill Andresky Fraser writes about changes in the private-equity markets.
- Senior editor Martha E. Mangelsdorf: It's more important than ever to have top-notch advisers when you go looking for capital.
- Staff writer Stephanie Gruner shows that angels are increasingly playing by the same rules as venture capitalists.