Need Money? There Are Choices

Commercial lending from banks, according to some business owners, is more difficult to get than it has been in years past. The initial public offering market of private companies came to a nearly-standstill in the second half of this year. And venture capital financing, by many estimations, is an investors’ market — meaning there are many businesses looking for funds, allowing investors to be increasingly selective about which companies get money.

But there are opportunities for businesses. Local executives and bankers agree that financiers are all in all looking for sound fundamental business indicators previously they pour money into companies.

Traditional business loan done for a company

To get a traditional business loan done for a company, he said, bankers focus on the basics, at times referred to in the industry as the "five Cs:" character of the business, condition of the market, capacity of the business to take on debt, capital the company currently has and collateral the company can use to take out a loan.

But traditional business loans are not right for every company. Many high-innovation business executives look toward venture capital fundraising to fuel their companies.

Venture capital investing seems to be holding its own. In the third quarter of the year, there were 765 VC deals nationwide, with investors pouring $8.4 billion into businesses, according to VC tracking firm Dow Jones Venturesource. That’s an increase of 29 percent in the amount of money invested in businesses compared to last year.

One of those businesses getting a VC deal was Natick-based cloud computing company TwinStrata. The company secured an $8-million Series B financing round in October, said company CEO Nicos Vekiarides.

There was an expectation from current investors that to in fact scale up the company, more money would be needed, so additional investing dollars were acquired. The company offers a range of IT products that allow businesses to more effectively manager their data storage on the cloud — a term for off-site IT infrastructure.

To help companies reach that point, new players have played increasingly important roles in helping to finance businesses.

Point where VC investors will pay attention

To help get to a point where VC investors will pay attention, businesses are relying more today on early-stage, high-risk, high-reward investors known as angel investors. Typically, angel investors provide less money than a venture capital firm does, and traditionally angel investors use their own personal wealth to invest in companies, compared to VC firms that use pensions or other investment vehicles as capital to dole out as VC funding.

Angels tend to invest in companies that aren’t quite ready for VC financing, said Jerry Schaufeld, a professor at WPI’s schools of business and engineering, and an angel investor himself.

Schaufeld said there are 32 angel investment groups in New England and they’re increasingly providing the upfront capital businesses need to prepare a business for a venture capital investment. TwinStrata even started out with an angel investment, Vekiarides said.

Company is funded

Once a company is funded, in the end those investors look for an exit strategy. Unfortunately, those do not seem to be doing very then right now. One of the most traditional exits for investors, meaning the way investors recoup the money they have poured into a business, is an IPO.

IPOs are like dominos, Chang said. If there are a handful of successful ones in the market, more businesses and investors start jumping in. If some of these big-name companies execute successful IPOs, that could bode then for other businesses across the country that are looking to go public.