What’s the Scuttlebutt on Securing Capital?
How much longer until securing capital gets less daunting than it has been over the past year and a half? That is a question on every dealmaker and business owner’s mind and the one I posed to Oscar Jazdowski of Silicon Valley Bank who serves on the ACG Corporate Development Forum program committee.
Silicon Valley Bank, consistently lending over the past 18 months, focuses on technology, life sciences and venture capital companies with capital requests ranging from sub $1 million to multi-millions depending on the size, stage and industry of the client. In Oscar’s opinion, things will change for the better over the next year once Wall Street analysts change their focus from “what are your bank’s woes and have you fixed them yet?” to “how will your bank grow?” When that shift in thinking occurs then lending practices at more banks will become more favorable. Naturally, at first and at most banks the lending practices will be more conservative with EBITDA multiples in the 2-2.5x range. In order to secure what would have been considered a normalized rate of 3-4.5x of EBITDA for a profitable industrial company, applicants will have to demonstrate their achievement of strategic goals including revenue and profitability targets.
What’s going on with small businesses?
• Last February the American Recovery and Reinvestment Act included some favorable loan options for small businesses. Unfortunately, the SBA guarantees to 90% of principal, waiver of loan fees and float loans up to $35k in expenses interest free for 6 months reportedly have not panned out so well per CFO Magazine.
• Angel Investors, often an initial source of equity, disbursed 27% fewer dollars in the first half of 2009 compared to the same period 2008. Though the number of deals increased by 6%. Center for Venture Research at UNH: http://wsbe.unh.edu/analysis-reports-0
• Venture Capitalists invested $17.7 billion in 2,795 deals in 2009 which is the lowest dollar level since 1997 and a 37% decrease in dollars and 30% decrease in deal volume from 2008. Though the 4th quarter of 2009 dollar investments declined by 2%, deal volume increased by 15% from Q3 2009 as did the number of first time financings. MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association https://www.pwcmoneytree.com/MTPublic/ns/index.jsp
Don’t despair, according to Oscar. By generating predictable and repeatable revenue and cash flow now, securing capital in the future will get easier. Think of the cable companies where customers renew their service subscriptions month after month. The extent to which a business has that kind revenue stickiness will work in your favor when applying for a loan. Don’t have a subscription business? Then focus on your organization’s ability to accurately forecast sales and fill the pipeline for sustaining and growing revenue and profit performance.
Carol Bergeron
Workforce Planning & Integration | Management Development | Human Resources
