Financing Options

So far, you've been able to finance your company's growth through internally generated funds - profits retained in the business - along with a few bank loans. Your success, especially your expansion to other campuses, has confirmed your original belief that you've come up with a great business concept. You're anxious to expand further, but to do that, you'll need a substantial infusion of new cash. You've poured most of your profits back into the company, and your parents can't lend you any more money. After giving the problem some thought, you realize that you have three options:

1. Ask the bank for more money.
2. Bring in additional owners who can invest in the company.
3. Seek funds from a private investor.

Angels and Venture Capitalists

Eventually, you decide on the third option. First, however, you must decide what type of private investor you want - an "angel" or a venture capitalist. Angels are usually wealthy individuals willing to invest in start-up ventures they believe will succeed. They bet that a business will ultimately be very profitable and that they can sell their interest at a large profit. Venture capitalists pool funds from private and institutional sources (such as pension funds and insurance companies) and invest them in existing businesses with strong growth potential. They're typically willing to invest larger sums but often want to cash out more quickly than angels.

There are drawbacks. Both types of private investors provide business expertise, as well as financing, and, in effect, both become partners in the enterprises that they finance. They accept only the most promising opportunities, and if they do decide to invest in your business, they'll want something in return for their money - namely, a say in how you manage it.

When you approach private investors, you can be sure that your business plan will get a thorough going-over. Under your current business model, setting up a new laundry on another campus requires about $50,000. But you're a little more ambitious, intending to increase the number of colleges that you serve from five to twenty-five. So you'll need a cash inflow of $1 million. On weighing your alternatives and considering the size of the loan you need, you decide to approach a venture capitalist. Fortunately, because you prepared an excellent business plan and made a great presentation, your application was accepted. Your expansion begins.