Identifying potential investors
The following list of North American investment and financing sources is by no means exhaustive. It includes a key group of investors and lenders interested in placing funds in environmental enterprises, who may also have an interest in sustainability. The suggestions are doors into the world of investors and lenders: a world that can be intimidating for the SME unfamiliar with capital markets.
In certain cases, the company identified is not the direct source of funds, but is a broker or intermediary. The list of government sources has been kept to a minimum because there are other directories that describe them.
Financing comes in many different forms. The entrepreneur must decide which type is best and then approach the appropriate source. Financing instruments to consider include working capital, leasing, project financing, long and short term debt financing, and equity financing. The sources listed at the end of this section provide these types of financing.
There are a number of different types of investors. They include commercial banks such as Bankers Trust, leasing companies like Bank of Boston, mutual and other funds such as the Crocus Investment Fund, socially responsible investors like the Calvert Group, investment bankers such as ScotiaMcLeod, and export financiers like the Export Development Corporation.
Venture capitalists, strategic investors that use their own corporate equity to invest in other companies, community loan funds and government investment agencies, such as the Federal Business Development Bank, are also sources to consider.
Each type of investor has different interests. Some focus on debt instruments and others on equity. Their requirements for guarantees or security vary, as do the rates of return they seek, their degree of involvement in the companies in which they invest, and how they realize their return.
It is preferable for an enterprise seeking capital to receive it from a number of different sources. This allows a match between debt and equity raised and business requirements, and generally increases the likelihood of meeting financing targets. While banks and other sources of debt financing will undoubtedly be important, certain sources of equity financing are absolutely crucial to successfully capitalizing a SME.
Venture capitalists are often criticized as being tough on SMEs, but their risk orientation makes them valuable sources of investment. Venture capitalists look for growth-oriented companies, and often provide sorely needed financial leadership to young firms.
So-called 'angels' are useful sources, too, especially for early-stage financing. In North America, they are becoming more common, particularly as the older third of the population enjoys a higher level of affluence. SMEs should approach these individuals via accountants, lawyers, investment advisors and other professionals. Angels tend to invest in their own communities or areas of expertise, and they can add greatly to a firm's management capacity.
Investment bankers manage their own equity or the funds of others, and often have a strategic interest or area of specialty. They also bring enterprises to capital markets for additional investment.
General and mutual funds seldom invest in SMEs. They tend to stick to secondary markets - namely stocks and bonds. Some fund managers, however, do focus on small and/or sustainable businesses.
Socially responsible investors also tend to stay in secondary capital markets, but sometimes they create specific funds for SMEs. These are usually included in an internal portfolio, or directed by an independent manager.
Strategic investors are a largely unknown source of capital for SMEs. Certain larger (and some mid-sized) companies invest their equity in SMEs in order to gain access to new technology or research & development projects. Others do so in order to integrate their companies horizontally or vertically.
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