A common question is, “What type of capital structure is best for my company?” The answer to that question is individually dependent upon your company, its stage of development and its needs. In the broadest sense there a two types of financing, debt financing and equity financing. Let’s take just a minute to consider the broad implications of both.

Debt financing is the infusion of capital by an investor in exchange for an agreement or repayment and interest over a specified period of time. Debt is usually backed by collateral and subject to other restrictions the investor may impose to secure their position. Common examples of debt capital are loans and the issuance of bonds. Debt may be an attractive means of securing capital for your company because you are not required to give up equity in exchange for the infusion.

However, carrying debt on your balance sheet requires that you have sufficient cash flow to make periodic interest payments, projected resources to pay off principal at the time of maturity and collateral necessary for securitization. Debt financing is many times not an option for early stage companies because of lack of positive cash flow. An exception could be debt put in place alongside owner’s cash for the purchase price of hard assets, such as plant equipment or real estate, that’s liquidation price would be sufficient to cover the amount of the loan

Equity financing is the infusion of capital by an investor in exchange for stock in the company. Equity issued to investors in exchange for cash can take many forms such as common stock, preferred stock or warrants. Common equity investments are those made by venture capital funds, angel funds and hedge funds. Whatever the agreement structure, equity investors expect a return in the form of dividends and appreciated stock value at the time of a company sale or public offering.

Equity financing may be attractive because it allows for an infusion of capital into your company without the immediate cash obligations associated with debt service. Additionally, bringing in equity investors means that you’re bringing in new owners and possibly new board members which may a change in the corporate culture. Many times these new owners are experienced businesspeople in their own right and can offer management valuable insight and perspective as your company grows and changes.

While equity financing does not make significant demands on cash flow, except when dividends are paid, it can come at a high price. Equity investors take on a lot of risk when investing in your company at an early state but generally reap handsome returns on their investment at the time of company sale or public offerings.

For more info on this subject as well as more info on getting funding for your start-up go to http://www.capitalmatchpoint.com

The Jobs Act - passed by the Senate and the House.

The JOBS Act was signed into law by President Obama on April 5th, 2012. The House originally passed the Act, and then it was amended by the Senate on March 22, 2012. This Act makes changes to a lot of different laws to attempt to make it much easier to raise private capital. This applies to a lot of emerging companies that want private capital and they wish to stay private longer. In addition, it reduces the regulatory burdens on certain public companies that are new.
If securities are held by 500 people or more issuers are required to register that class of securities with the SEC. This makes these securities extremely burdensome with regard to reporting obligations. They have to file very detailed quarterly and annual reports with the SEC.
With the passing of the Act, the threshold has now risen to 2,000 holders of record. One of the provisions is that no more than 499 of those investors qualify as an “accredited investor” under SEC rules. One of the positive aspects is that persons who purchase securities pursuant to crowdfunding are exempt. This will open the door for entrepreneurs to receive a new method of funding and this is something that is extremely positive for start-ups.
The enactment of the JOBS Act is effective immediately. The regulatory agency (SEC) is going to have to adopt rules and revise what they call “held of record”. The rulemaking for the SEC revisions should take place within the next 270 days. It passed Congress last week through a 73-26 Senate vote and a 380-41 House vote, including an amendment designed to protect crowdfund investors in order to make it easier for start-ups to access capital.
What this means for entrepreneurs:
1. More Control over the Timing of Going Public.
2. Less Impacted by Potential Reporting Requirements.
3. Potential Impact on Secondary Markets.
4. Eliminates the Prohibition Against General Solicitation and Advertising
5. Reach a Wider Pool of Investors
“Simply, the JOBS Act will make funding more accessible for startups by allowing non-accredited investors to participate in the funding rounds, and this alone, I believe will be the main factor driving the increase in new companies being founded. And with new companies comes the need to hire staff. Without a doubt, this will help the current unemployment rate,” said Tanya Prive, founder of Rock The Post, a social networking platform for entrepreneurs to fund and swap resources.
Rory Eakin, founder of CircleUp, an equity-based crowdfunding platform focused on established high-growth consumer and retail companies, added: “Currently, less than one percent of U.S. small businesses receive Angel investments. By opening up restrictions around general solicitation and introducing crowdfunding…these investments create up to six jobs per investment.”
The Capital Matchpoint founder and President, Ken Honeyman and Vice President, Dave Dambro have been watching the bill as it progressed through the House and the Senate. The Capital Matchpoint is a premier online destination “where business meets capital.” They have carefully crafted an online community where entrepreneurs can develop a profile which then has a sophisticated method of using the information to match them up with the investors in the network. The website has all types of resources including an entire library of helpful videos, free e-book download and more.
If you are looking for capital: visit www.capitalmatchpoint.com

Written by Edward Cambas – Capital Matchpoint Business Desk.