Accessing Capital and Supporting Marin County Businesses Financially
One of the most difficult steps in starting and growing a business is how that business will finance itself. One of the cornerstone ideas that built modern finance is that there is not a material difference among potential mixes of debt, equity and cash to finance a business. The Modigliani-Miller Theorem has this implication; the Capital Asset Pricing Model (#CAPM) was born from this idea (and many others). However, finance theory evolved in the 1980’s and 1990’s to consider data that suggested it did matter a bit, and that there is an optimal mix for every business that is specific to that business.
I was humbled to moderate a panel at the “Access to Capital” gathering on April 29 at the San Rafael Community Center. MEF was a major sponsor; San Geronimo Golf Course provided food and we provided staff to help with the event’s coordination. This event was hosted by the Small Business Development Center (#SBDC) here in Marin County, as well as Renaissance Center (where SBDC in Marin is located at 1115 Third Street). Marin County’s only business accelerator, Venture Greenhouse (also housed at Renaissance in San Rafael), was also very involved and had many alumni of its program in attendance.
The panel addressed many aspects of financing a business from crowdfunding (Celery) to peer-to-peer lending models (Lending Club) to financing a building purchase (Capital Access Network) to classic angel financing (North Bay Angels). As moderator, I asked a lot of questions about the mechanics of each funding source; the answers and stories were great. In a time where interest rates have been relatively low, but markets remain stingy with working capital options (and rightfully so as national and global economic risks remain in the recent recession’s wake), these four capital providers act as unique alternatives to classic business lending or a bridge from their current state to a bank loan. Breakaway Funding, another crowdsourcing platform, was MEF’s guest and had an informational table at the event, as did many banks and other capital providers and entrepreneurial support organizations.
Over 200 people came to this event. One question that came from the crowd was the best mix of equity and debt financing. None of the panelists had a complete answer to this question, and all suggested “it depends” (like good, budding economists). The “it depends” answer suggests there is an informational issue and the answer is specific to the business seeking financing; understanding risk on both sides of a venture finance or classic finance transaction is important. It is exactly this risk that upsets the idea of a competitive and complete financial market (where there is perfect information and mixing two assets cannot provide profit beyond the two individual asset sales) driving markets to not care about the financing mix. We know markets do care and price accordingly.
The panel told many stories of what happens when things go right, and almost all of them said poor accounting and planning undermined the failing businesses’ ability to deliver. Information is the key to any business decision, for sources of funding and those receiving funding alike. Please seek out local resources for growing your business or starting one, and start that process at Renaissance Center, SBDC in Marin, and Venture Greenhouse. Increase your information load and your ability to tell others your story and why your business should be financed.