YOU SUCCESSFULLY launched your business. Now, after a certain period of time or after a milestone of sorts has passed, it is safe to assume that your new business has experienced one of three likely outcomes thus far:
  • The business has exceed all expectations
  • The business has achieved about what was forecast on the original business plan
  • Uh Oh!
Regardless of what has transpired during the initial stages of your new business’ evolution, one common denominator probably played a significant role in deciding the size, scope, scale and even the success of your undertaking: funding. Funding is a necessary component of any business, large or small. It is a force that can dictate how and when a business starts, the future growth and expansion of that business, or it could even be a life-saving mechanism during rough, economic times. 
Many times, small businesses can be started using personal collateral, some financial assistance from family or friends, a small business loan from your local bank, or even a combination of those funding sources. And once the business has gotten out of the starting gate, that initial round of funding can be multipurpose in its utilization too. From marketing and advertising to payroll, the monies you acquired for start-up and early survival has to represent funding well spent. 
Second Round Funding Explained
So many factors can come into play at any time when a new business is attempting to forge new ground. It happens in larger, established companies, too. So, regardless of your company’s age or market position, a second round funding may be necessary to accomplish the goals you’ve set forth for the future of your company. Second round funding can be described as monies secured through one or various sources for the purpose(s) of financing expansion.  The second round funding process usually takes place following the initial start-up phase and in addition to the business being able to successfully demonstrate that it is positioned for growth.
Where does a business go for second round funding? Well, the first logical place that comes to mind may be a trip to your local bank. But what if your business is unable or simply doesn't want to secure debt financing? What if you are unable to acquire sufficient financing through a traditional business loan?  There are other alternatives. Enter private equity.

When it comes time for the small business to seek an additional supply of working capital for growth, it may turn to the world of private equity. Private equity investments are made, by and large, by private equity firms, venture capital firms and/or angel investors.  Each of these classifications of investor has a unique set of objectives, partialities and investment strategies. One common theme among each of these entities, however, is delivering that necessary working capital to the applicant. That funding could be used for the purposes of cultivating growth, delivering new products and services to the market, research and development initiatives, buyouts, or even restructuring a businesses’ ownership, operations, or management structure.

Which funding source is the best for you? Well, most small businesses turn to angel investors for their second round of funding needs. Angel investors can be portrayed as affluent individuals or a grouping of proactive individuals who make financial investments (equity financing) in start-ups or in businesses that may be in the early stages of existence.  They are investors usually provide their own funds versus a pool of funds in exchange for convertible debt or ownership equity. In many cases, this type of private equity can bridge the gap between loans from family and friends and traditional banking or lending organizations. Angel investors also are usually willing to take bigger risks and/or invest in projects that traditional lenders are unable to accommodate due to the nature of the investment itself.
Three Scenarios…One Objective
With countless intangibles presenting themselves at all times when operating a small business, an owner has to always be prepared for what lies ahead; even if he or she is unaware of what those factors are. These factors are usually what dictate how a business fares, especially in its early stages of existence. In many instances, a second round of funding addresses those intangibles. As mentioned at the beginning of this section, there are basically three scenarios (or outcomes, if you will) that a business could realistically experience. So, if and when a second round of funding is deemed necessary, knowing there are alternatives in addition to your local bank can be reassuring.  
But what do angel investors (or other private equity firms) look for in an investment?  The same thing a bank would look for; a healthy and positive return on their capital infusion. These investors will require some of the same criteria a bank may necessitate. Here’s a sample of what may be requested when approaching them:
  • Solid business, marketing and strategic plans for growth
  • Financials
  • An established ownership/management team with industry experience and proficiencies
  • Your personal investment breakdown (and other outside monies) used to start your business
  • A comprehensive overview of your market and your current market position
  • Competitive advantages with your products and services
  • A return on investment outline and forecasting
  • An exit strategy for the investor in a defined period of time
When is the proper time to seek second round funding? Well, there is no actual standardized timetable or checklist across this vast industry. However, each angel investor, angel group and/or other private equity firms each have their own decisive factors that will determine when (and how) the process will commence. The internet is an invaluable place to begin your search queries regarding which type of organization might be best suited for your current situation and ultimately your future needs. Many organizations even allow you to apply online for pre-approval and future consideration. Some funding organizations may have minimum standards for this feature and fees may apply as well. 

The great news today is that there are an abundance of opportunities for small businesses to gain additional competitive advantages in their markets with a fresh infusion of working capital. Many of these alternatives to the traditional lender didn’t exist years ago either; another plus. The internet has also provided a wider landscape of choices in locating possible funding sources too; with instant, electronic information deliverables and receivables available to both parties. As always, being educated and in-the-know regarding what’s available to you and what might be the best fit for your specific funding needs will be a major step in the right direction.