Austin Venture Capital and Other Options For Finding Investors For a New Business
One of the foundational problems facing new companies is that of how to acquire sufficient funding to keep a business running while it grows and becomes self-sustaining. Though financing has become more difficult to obtain in recent years, there are still investors willing to take a chance on a company with a competitive advantage and a bright future. While venture capital is a common source of funding for a new business, other options do exist for those who qualify.
Emerging companies seeking funding usually pursue one or several of the following sources:
- Friends and Family
- Unrelated Private Investors
- Small Business Administration Loans
- Certified Capital Companies
- Venture Capitalists
Funding From Friends and Family
If finding Austin venture capital sounds like a daunting task, you may have other options. Many small business ventures without large budget layouts solicit family and friends for capital during the start up phase, rather than looking for Austin venture capital opportunities that can be much harder to obtain. There are several advantages to this approach. For starters, these people are usually not very interested in structure and may not be represented by their own attorneys. Regardless of the innate informality of these relationships, efforts should be made to ensure that all of the proper information is provided to these investors, whether that be a subscription agreement, shareholder’s agreement, or other formal offering agreement.
Help From Unrelated Private Investors
If friends and family are unwilling or unable to offer financing, unrelated private investors may be sought to provide capital. This group typically includes customers, suppliers, board members, or industry-related retirees. They will usually require preferred stock rather than common stock but with terms more favorable to the company than those of a venture capital agreement. These transactions usually involve a private placement memorandum and the filing of a preferred stock designation.
Small Business Administration Loans
The Small Business Administration (SBA) may give loans of up to $2,000,000 to companies wishing to establish a new business or desire assistance in the expansion of a current business. To qualify for an SBA loan, the company must be a “small business” – i.e. privately owned and fall within a certain size requirement for the industry in which it operates. Companies applying for an SBA loan must fill out forms listing its history, the nature of its business, and several years of financial statements, among others.
Certified Capital Companies
Texas is one of the few states which have authorized the creation of Certified Capital Companies, or CAPCOs. CAPCO’s generally require companies that receive funds to be engaged in certain business activities, headquartered in Texas, and have a certain number of employees residing in Texas.
Funding From Austin Venture Capitalists
If you do decide to go the venture capital route to help find your Austin business, there are a few things you will need to know. Venture Capitalists are ordinarily the most sophisticated class of investor. They usually have very strict guidelines with little flexibility for business owners. The terms offered by Venture Capitalists generally favor investors quite heavily and leave little room for negotiation. Venture Capitalists usually have a large amount of money at their disposal, but require a seat at the head of the table in exchange for access to those funds.
Concerns Held By Business Founders
General business founder concerns usually include:
- Maintaining operational and strategic control
- Avoiding dilution of their ownership position
- Obtaining sufficient funds to meet strategic goals
- Providing financial rewards for entrepreneurial efforts
Well-drafted and thought out agreements take these concerns and others, such as intellectual property rights, into account. With proper counsel on Austin venture capital and other funding options and well-maintained financial documentation, both company founders and investors should be able to reach an amicable and mutually beneficial arrangement which touches on the points listed above, as well as those contained below.
Concerns Held by Investors
Common concerns held by investors include:
- Minimizing tax implications of investment structures
- Maintaining a level of influence on the company
- Providing protection against financial difficulties
- Obtaining a high return on their investment
Contact our Austin office by calling 512-777-4313 or submitting the form on the right to learn more about Venture Capital financing and how Zumwalt Law Group may be able to assist you.