Inc. goes to the experts to find out what the real-world financing prospects are for small private companies.
Five companies are looking for cash. What do the experts say about how they should get it?
What a difference a year makes. Last March the dot-com frenzy was at its peak and the capital markets were so flush with cash that they were practically bursting at the seams. After a string of record-breaking years in which the returns on public and private equity in the United States had created breathtaking levels of wealth, investor interest in entrepreneurial companies was at its height. Bank lending and other forms of debt, meanwhile, were readily available and affordable, while the launching of new financing vehicles, especially on the credit front, was nonstop.
By year-end 2000 the capital markets had a different story to tell. Public-equity prices and venture-capital returns were low, in some cases painfully so. Dot-com millionaires were on the endangered-species list. And with interest rates high and bank credit tightening, George W. Bush's yet-to-be-inaugurated administration issued warnings of a possible recession.
Amid all the mayhem, it was tough to tell whether the capital markets were in an incipient crisis or simply experiencing a nasty but healthful dose of reality. After all, despite the downturn, the 1990s had left behind them funds aplenty for investing and lending. And who could argue with the financial community about its renewed focus on companies capable of achieving profitability and healthy cash flow, as well as accelerated market-share growth?
So, within this confusing and challenging environment, just what are the real-world financing prospects for small private companies? To get a sense, we've taken five businesses that are looking for capital and asked a diversity of financial experts to guide them to the most likely sources of funding in the current financing universe.