Advantages:
- You give up a smaller portion of equity for the same amount of capital that angel investors would inject. You typically even give up less than you would using a more traditional private placement.
- If you are growing rapidly, you are most likely funneling much of your operational cash flow into expansion. This is equity so you don't have to worry about repayment or hiccups with your expansion plan resulting in difficulty with loan repayments or covenant violations.
- Since you are marketing to your target or current customers already, you get to align your marketing efforts with your money-raising efforts. Typically, raising money pulls the owner's or CEO's (and CFO's) focus from the day-to-day business to funding the company which can cause problems.
- Your current customers know you and your target customers are getting to know you. Part of raising money is getting people to believe in the ongoing health of your company and your product or service. Customers (or potential customers) are already there.
- You get experience that you can leverage when doing a larger private placement or actual IPO later on in your company's growth plan.
- Typically, since you register a SCOR with the state and not the federal government, your customer or other potential share buyer must come from the state in which you register. If you have national or regional customers, and therefore want to include more states, the expense will increase accordingly.
- How will your customers (and others) get their investment and return on investment back? You may need a well-communicated exit plan or stock re-purchase plan if you encounter a lot of resistance to waiting indefinitely for a payout.
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