Latin American Capital Markets

ACCESS TO FINANCING FOR SMALL AND MEDIUM ENTERPRISES 399Table 12-3 I Financing According to Life CycleMain sourceof financeOwn capitalFamilyBanksSeparate SME bankunitsSuppliers of subtitutes,including banksPre-Earlystart-up Start-up growth Expansion Succession MaturityRegional developmentagencies X x xPublic funding institutions X x x X X xRetained profit x X X xInformal investors X x XVenture capital funds x x X X xInstitutional investors X X xJunior stock markets X X xally in some 30,000 ventures; in comparison, in 1998, institutional venture capital fundingwas estimated to be around $ 10 billion (Sherman 2000). Business angels usuallyselect companies with high growth potential.There are several different forms of angelsor venture funds: nonprofit angel networks, pledge funds, investment clubs, CEOangels, or angels online (Sherman 2000).There are other sources of seed finance, althoughthey might not be utilized as often as the ones mentioned above, for example,business incubators, public agencies, and customer or vendor financing.Private PlacementsPrivate placement constitutes an important financing strategy available to early-stagecompanies. It basically means the offering of securities by a small or growing companyin a relatively simple and inexpensive way, as it does not have to be registered withthe Securities and Exchange Commission or the appropriate authority. Private placementdoes not require extensive reporting, and therefore the costs are much lowerthan in the case of IPOs. By contrast, IPOs attract sophisticated investors who mightoffer certain benefits and industry knowledge to the company and permit rapid penetrationinto capital markets.X x xX x xCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub