The Equity Financing Process At “Only Ladies”
Introduction
Equity financing is a form of interest or claim that is derived by investors when all liabilities have been paid. Shareholders equity on the other hand refers to any amount of remaining assets in a company which are spread among individual shareholders and is sometimes referred to as preferred stock. The other category of equity is ownership equity which is the owner’s financial contribution to the company while outside sources individual that are not necessarily shareholders such as venture capital can be used to fund a business. The entire financing process is quite spectacular with five stages that are consecutive from the time of establishing need for external sources of funding to acquisition of the funds. In “Only Ladies” equity financing, a venture capitalist firm was identified as the best source of finance due to the extra benefits derived from the business venture.
Discussion
The business: “Only Ladies”
“Only Ladies” is a micro enterprise which was started on April 23, 2009 as a family business co-owned by my marriage partner and I which was aimed at providing a one stop-shop for ladies. Initially the business stocked and sold handbags, shoes and jewelry which are characteristic of ladies hence the name. The store is located in Green Mall found in LakeCity; Florida which is one of the biggest cities in the state of Florida. However, as days went by, the number of clients streaming in increased considerably with some of them seeking other feminine products, as well as, services such as beauty services and a shop with items for their small girls. This was a major challenge as getting extra funds from the financial institutions was proving to be quite a task as we were still repaying the loan we had used to start the enterprise (Stein and DeMuth, 2003).
Consequently, some clients had seen adverts about our shop and some were requesting for the items from all parts of the country which was impossible as we had not considered use of delivery services for such clients hence there was need to establish delivery services. Another option was to open a new store in that part of the country which had more clients. In the recent months, we had expanded the store from a single room shop to an entire second floor of Green Mall in the town.
Similarly, with advanced technology and increased clientele, the urge to expand the business has been critical, as well as, appealing as we shall be creating more jobs for Americans. The other reason as to why extra finances were sought was to ensure that online advertisements which were established recently would attract more clients and delivery services would be availed to them thus remain relevant in the market (British Columbia: Business Equity Branch 2001).
Reasons for choosing equity financing
When “Only Ladies” was starting, the capital that was used had been borrowed from friends, personal bank loans and savings which had been accrued over the years when we were involved in formal employment. Thus there was need to seek fresh sources of finance which would ensure that “Only Ladies” was able to move to the next level easily, as well as, maintain the same rate of growth (Stein, 2003).
The reason as to why venture capitalist firms who are specialized in new ventures for a lucrative return were sought was due to the extra benefits that are derived such as expertise on other reliable sources of funds incase a business might need such in future. Similarly, advice of legal affairs regarding equity financing and strategies in marketing to increase client base were all accrued for the venture capitalist firm. Thus the process of acquiring the financial support was initiated (Walter, 2004).
The venture capital financing stages
The seed stage
At this stage, we approached the identified venture capitalist firm and presented our ideas of expansion, as well as, the broadened geographical coverage of the clients. The need for clients to have a one-stop shop which catered for al their needs is a vital concept for the modern working woman who has limited carry out her entire shopping. The other idea presented to the investor was that of establishing an online store which would serve as an avenue for clients in far flung areas such that funds will be required to avail means of transportation for the purchased goods (Walter, 2004).
These ideas were quite feasible as modern marketing strategies are very much inclined to online advertisements and shops. Hence there was hope for the investor gaining from the deal while increasing the array of lady’s and girly items proved to be a step in the right direction as women often tag their young girls along when they go shopping thus a one-stop shop for both would be profitable. However, there were some risks at this stage such as the eventuality of clients shifting their product preference due to hard economic times hence failure in attaining the goals of an expanded store line (Stein, 2003).
The start-up stage
A business plan was presented to the venture capitalist firm which entailed the progress and development of the business. However, as it was not a starting firm, its progress was measured in accordance to what had been indicated in the business plan. Consequently, a team from the venture capitalist firm was sent to “Only Ladies” where they conducted a market research to determine whether the ideas presented by the business were ideally present and feasible. Consequently, the impact of the intended growth was analyzed alongside the client base such that the team, as well as, careful scrutiny of the management to determine whether they are able to handle the intended ventures appropriately (British Columbia: Business Equity Branch 2001).
The second stage
At this stage, further analysis of the management team at “Only Ladies” were carried out by the venture capitalist firm and it entailed watching closely how management reacted to different changes in the market. A major aspect of management that is checked is capability to remain relevant in the market despite the many competitors who could be presenting stiff problems and challenges. This is a critical point as any problems in management may lead to termination of financing services. However, the most intriguing part is that the venture capitalist firm may call for restructuring of the entire management to ensure that members of that team are competent in handling key business issues (Stein, 2003).
The third stage
This is a stage coupled with extensive marketing campaigns that are carried out to ensure that existing and new clients are aware of the expanded “Only Ladies” store. Similarly, information regarding the enhanced variety of products and services on sale is relayed to potential clients such that the move to expand business takes effect almost immediately (Walter, 2004). The venture capitalist firm uses the SWOT analysis to establish and make suggestions for the best criteria which can be used by “Only Ladies” to create an edge on other competitors. This is also the stage at which the venture capitalist firm seeks to understand the behavioral component of clients and the reception of products in new areas.
The bridge stage
This is often regarded as the final stage of the venture financing process as the investors are usually working on ways of making the venture public. At this point adequate marketing strategies have been laid out to ensure that the business has attained a certain market share by eliminating competitors, restricting opportunities for new competition and introducing new products which will create more expansion avenues for the business (British Columbia: Business Equity Branch 2001).
Conclusion
Equity financing as a source of funds in an existing business is quite significant as firms which were inefficient in certain areas of operations are revamped by professional experts from the venture capitalist firm. The services that are provided by the firm are essential in determining the future role of the business together with ensuring that chances of attaining the set goals have been maximized. Small businesses such as “Only Ladies” are in a better position to gain from the firm as most financial institutions are often reluctant to fund small business due to lack of stability in the firm.
References
British Columbia: Business Equity Branch (2001), equity financing: small business.British Columbia: Business Equity Branch
Stein, B and DeMuth, P. (2003), Yes, You Can Time the Market! Hoboken, N.J: J. Wiley
Walter, W. R. (2004), Financing Your Small Business. Barron’s Educational Series.
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