7 Ways To Raise Capital

7 Ways To Raise Capital
…without begging the bank
By Stephen J. Kerr
Having been a financial advisor to video, print and audio publishing companies for the past eight years, as well as the distributors, printers and duplicators that serve them -- I have seen some pretty ingenious ways that entrepreneurs have found to raise needed expansion capital and keep their companies going, or growing.
The following are seven actual ways that communicating arts companies have found to raise money without ever talking to a banker.
#1: For Love and Money
It is a known fact that it is easier to get money out of people who love you or need you than it is those who don’t. Many business people are too proud to go to their parents, siblings, uncles or cousins for money to build their business. But wealthy family members give their money to total strangers all the time to invest with other strangers who may, or may not make them any money. One video producer I know had a little brother who made it big in television sit-coms. They formed a corporation that allowed the actor to invest in his brother’s post production studio and this helped them keep stay close, while living very separate lives. If you believe in what you are doing, the chances are there is a family member that believes in you.

#2: Be Private, but Look Public
One small press publisher that I know has raised tens of thousands of dollars, that he will probably never have to pay back, by selling small blocks of shares in his private company over the years. It is true, that he has what the Irish like to call, "The gift of gab", but he is also a good and sincere publisher. He makes up an "Annual Report" on his little company and has his stockholders over for tea with new authors, to give them the illusion that they too are publishers. This could be called country-club fund raising…but it works. If you publish beautiful trade coffee table books, literature or children’s books…you might want to try this method.

#3: Vendor Financing
Every business has vendors. A publisher often has a distributor and a favorite printer, a printer has equipment providers and equipment manufactures have their sub-contractors. The same is true for movie companies, software producers and all other intellectual property creators. Never under-estimate your vendor’s desire to build a higher margin return into their business and wed themselves tighter to the creative source. Of course sometimes your vendors have less money than you do, but that might get you rethinking who you use as vendors. In the sell through video market, several video wholesalers have been known to co-finance original productions in return for an exclusive in the market. One of the largest book distributors in America routinely arranges loans and co-publishing fund for small press publishers to gain margin and loyalty. The movie industry could not exist without advances from foreign broadcasters, theater chains and distributors. My printer and duplicator friends would like me to mention that they are definitely not in the finance business. But, if you approach a printer or duplicator well before the book, audio or video goes into production – you might find them a willing participant in an equity position.

#4: Small Public Offerings
Many film producers, software creators and book publishers have used limited public offerings to raise from between $500,000 to $5,000,000 in private placements and limited public offerings. Few business people know of "Reg S" and other SEC sanctioned filings that encourage honest business people to open their companies up to investment from high wealth individuals, institutions and the public. Your company does not have to meet the requirements of NASDAQ or the other stock exchanges to benefit from limited offerings. Many software and Internet companies have been able to seed their company with funds from the public. Some of these offerings can only be made to offshore investors and others only to accredited investors with high net worths. One friend of mine had to reinvent his company several times - from a producer of low budget videos to a multimedia website producer -- until he struck on the formula that allowed the financial markets to venture $1 million on his company.

#5: Strategic Partnering, Licensing and Selling Sub-Rights
If you do what you do well…there is always someone else who needs what you’ve got. If you are a video producer, there are software vendors who need your content; if you are a book publisher there are video and movie producers who need your properties for scripts; if you make audio books there are multi-media producers who want your content for CD-ROMs. Where ever you look there is another media producer looking to repackage your content for their market. I was recently amazed to see the tens of millions of dollars that one entrepreneur raised to do children’s audio books and videos – primarily because these classic stories were read by some of Hollywood’s best known actors. Believe me when I tell you that corporations lined up to throw money at this small publishing company.

Today, theatrical movies are turning up as books, audio-tapes, games and toys at Burger King. You need to ask yourself if you have exploited all of the rights you own to the intellectual properties you have so carefully cultivated. A friend of mine, a video producer in Los Angeles has successfully turned non-fiction trade books into videos for the home consumer – all he needs is an idea and a personality the camera loves. Quit being so American-centric. You need only go the international book fairs to see that the ideas or entertainment you sell are just as marketable in France, Brazil, Japan and Canada as they are in Rhode Island, Montana and California.

#6: Affinity Publishing and Co-Ventures
Much of medical publishing could not exist without the largess of pharmaceutical companies. Cookbooks often benefit from the name of a cooking magazine on the cover, a la "Bon Apetit". Automotive repair or classic motorcycle books gender greater sales when they have BMW’s or Harley Davidson’s seal of approval. The PR departments of corporate America will often greet you with open checkbooks when they see that your book, video or software program will benefit them directly. We all know that there are enough publishers and news organizations out there lambasting American business and industry. You might also find them the be a financial partner and a friend. Co-Ventures are new partnerships or corporations set up usually by a producer/publisher with the product and a specialty marketing organization with the customers. Each agrees to put up half of the effort to capture a new market or build a stronger position – together. It gets down to, "Look, I have the titles and you have the money. You want to get into my business and I want to get into your markets. Since neither of us can afford to buy out the other, let’s do a joint venture where we can both own 50% of the venture." Many large publishing companies have put together co-ventures to enter new markets without taking the risk alone.

#7: Go Into Debt
It is a fact that some major companies have been started with the owner’s credit cards. At 18% to 21% that can get expensive. Loans from family members can get dicey, but at least they wont break your legs. Factoring accounts receivable is not an option. The price is too high and the fuse is too short. But, many business people will lend on special project financing. You might get a loan for $50,000 to get a documentary shot, but the investor will hold all of the rights to the film until the entire amount has been repaid. A special project loan can often be arranged from friends or authors to publish a special book or audio tape. The key to this kind of debt financing is to make the payback period short and the consequences of failure within your control. Many large publishers and producers borrow money from investment groups with a convertible equity proviso if the company goes public. This can attract much greater sums from investors that want to get on the ground floor of a fast growing media company.

These seven ways to raise capital are by no means the end of your choices. We are fortunate that here in America there is always enough money to fund successful entrepreneurs. It is the investor’s job to determine if you will be successful.