Tired of chasing venture capital and fed up with dealing with banks? There’s actually a third funding option that can be easier and more effective than either of those choices.
“When it comes to raising money for your business, you may not be taking advantage of all your options,” writes Brian Hamilton, co-founder and CEO of Sageworks. “It’s an underutilized, early stage fund-raising technique that will infuse capital into your business without diluting your equity.” A private placement agreement.
“If you’re looking to raise less than $1 million, private placement will allow you to raise capital, without losing a disproportionate amount of equity to a VC,” Hamilton explains. In this guest article for Inc. he lays out the three basic steps: develop a subscription agreement detailing “the types of shares your company is offering, how much stock is available, and at what prices,” place a valuation on your company, and sell the shares.
“Other companies may boast about closing about closing multimillion-dollar rounds of initial funding, but remember: That’s the most expensive form of capital,” Hamilton writes. “Someday, your company may indeed need to reach out to VCs for that kind of money,” but then again, it may not.