246 CHAPTER 10 FUNDING THE BUSINESS
Private foundations sometimes make grants, especially for environmental,
developmental, cultural and arts-related activities.
Finally, if you have a good business proposition or intellectual property (special
technology, a unique way of doing something, a good brand image) you might be
able to license or franchise its use to other companies, perhaps overseas or in a
market that does not interest you – often for large amounts of money.
Variations, hybrids
We have talked as if your choice is exclusively debt or equity. There are interesting varia-
tions and hybrids that can make your proposition look more attractive.
Investors sometimes try to limit their risks and increase their options by providing
you with a loan (debt – perhaps with a floating charge over your trading assets)
that commits you to repaying the interest and principal but also gives them the
opportunity to convert some of the loan into equity or buy equity at some pre-agreed
price when they see how things are going.
Management buyouts (MBOs) often include a similar mix of debt and equity –
sometimes known as mezzanine finance.
Preference shares rank before ordinary shares in the event of liquidation, and
offer a slightly better guarantee to investors. Cumulative preference shares
promise the same, plus a guaranteed dividend that can be deferred, rolled up
(cumulated) and paid when cash flow permits.
We’d rather risk being trampled by you
Amazon.com is now the world’s largest online retailer and the world’s largest book
store, with profits of over US $1 billion in 2010. Yet in 1994 founder Jeff Bezos failed
to obtain backing from anyone in the book trade. The obvious sources of finance
– existing corporations that could gain from (or later be trampled by) your vision
– are almost always not interested. Amazing but true. (See also Test marketing
Chapter 8 and the many anecdotes in Chapter 12.) What do your people say when
someone brings them a new idea?
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