The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions, Second Edition

CHAPTER 5

Sources of Capital and What to Expect

This chapter is focused on the different sources of funding and what to expect from each. In some instances you will find a blurring of terms regarding whether the topic is really a source of capital or a financing instrument. Nonetheless, we have done our best to clarify the differences and provide the information required to understand the alternatives. Figure 5.1 provides a broad overview of the types and sources of funding, and the range of rates of return they target based on their particular business model and risk profile. To support our experiences and assumptions, we solicited many of the funding sources listed in Part Three of this handbook for their actual data regarding the range of values they use in modeling an investment or loan, and then applied our experiences and further informal surveys in the current market.

These targeted rates are what you can expect to pay third parties depending on the financial strength of your company, its stage, its industry, the overall credibility of the plan, and the amount of risk associated with your business. These annual rates of return are not the realized return on investment of these sources or instruments; these are the modeled or planned returns at the outset of the transaction with your company. The overall actual or realized rates of return for most investors or lenders range from a loss to 25 percent, and the 25 percent is rare over the long term. From time to time there ...