Keeping pace with customer needs: Growth options for the tech sector
As first seen in the Daily Herald.
Growing a company in today’s business environment is a formidable task. Expanding quickly in the fast-paced technology industry, however, adds additional complexities that require a comprehensive approach with targeted outcomes. That being said, how does a small, growing enterprise in the tech sector formulate a strategy to keep growing and stay competitive in such a fast-paced industry?
Depending on which stage of the growth cycle the enterprise is in, different growth strategies should be considered in order to optimize collective efforts. Strategies such as bridge financing, recapitalization or targeted acquisitions are methods that can serve an enterprise depending on its position in the marketplace.
Bridge financing offers many benefits to technology-focused companies who need to keep up with the demands of their industries. A bridge can serve as a connection between a market-driven need for innovation and the next traditional fundraising round. It can also be a less expensive vehicle for financing, and does not create a negative impact for valuation nor sacrifices the critical element of speed. Additionally, bridge financing allows a company to set valuation at a point in the future, often once the traditional fundraising round has had the time to run its course. Investors in the bridge are then converted into future equity financing. Newer companies with values that may not be easy to determine may use the term "convertible note round" for their bridge, as they may be asking investors to come in through a note.
Recapitalization occurs when a company restructures their debt and equity mixture, most often with the end goal of stabilizing the company's capital structure. Companies frequently seek to diversify their debt-to-equity ratio to improve liquidity. An example of this is when a company issues stock in order to retire debt, thus increasing its ratio of equity capital to debt capital. In the case of a growing tech company, however, selling equity in the company or borrowing cash may be considered a viable option in order to raise the necessary resources to develop expanded product offerings.
Routinely, companies may not have the time or the resources to develop offerings that meet the needs of their customers. Hence, timing becomes an important characteristic fora developing enterprise in the fast-paced tech sector. A targeted acquisition can serve as a means of meeting the expanding needs of customers by quickly acquiring new technology or strengthening a service offering by establishing a presence in a new market.
Expanding quickly in the fast-paced technology industry requires an aggressive vision, strong leadership and a comprehensive approach that includes quality external partners to assist in the execution of a company’s growth objectives. By the same token, understanding a company's position in the growth cycle and in the marketplace can help develop a successful perspective in the expansion discussion that looks beyond traditional approaches to capital formation.
Enzo Incandela is an attorney in the Municipal Finance Group at Ice Miller LLP. He focuses his practice on financings for general obligations, utilities, tax increment, economic development and providing assistance to state and local governments with taxable and tax exempt financing for themselves and local industry.
This article is intended for general discussion of the subject, and should not be mistaken for legal advice. Readers are cautioned to consult appropriate advisors for advice applicable to their individual circumstances.