Tom Komaromi Published in ABA Newsletter "Business Visions"

The March 2006 issue of Business Visions, the ABA Business Law Section Small Business Committee Newsletter, carries an article by Tom ("Raising Capital through Equity Investments in Your Small Business") that notes "More than half a million new businesses are started each month in the United States. One of the most important components of a successful business start-up and expansion is the ability to obtain and secure capital. Finding a source of capital to finance company growth can be a major challenge, particularly for small and midsized businesses. The financing options available to a start-up are dependent on several factors, including the company’s immediate high growth potential and its choice of business entity."

The various options Tom reviews include loans vs. equity financing; sole proprietorships and general partnerships; limited partnerships, LLCs and LLPs; corporations, venture capital; angel investors; IPOs; and limited private offerings.

He advises: "Before entering into any agreement with an equity investor, the entrepreneur should carefully consider whether he/she is compatible with that person. After all, the investor, whether passive or active, will own a portion of the business. Personality conflicts can arise and lead to conflict, litigation, and the eventual demise of the venture. Most flourishing start-up business financings follow a predictable pattern. A typical successful equity investment cycle is the issuance of founders’ shares, sales to “friends and family,” subsequent sales to accredited and non-accredited investors, venture capital financing, and finally, an initial public offering. However, this is not always the case, and there is a multihued palate of colors with which to paint the financing of a business. The one constant in the life of a small business is the need for capital to increase sales, expand into new markets, or continue to sustain growth. Although there are a panoply of sources of funding available to entrepreneurs, each has its advantages. In 2002, fourteen percent of the 500 fastest growing companies in the United States started with less than $1,000. With intelligent planning, management, and financing, small businesses can continue to grow, innovate, and succeed in the marketplace."