Everyone likes to spend other people's money
Say you're starting up a new company. It might be in the digital signage industry or placed-based media, or maybe something else altogether. Like most new businesses, you need capital to grow and expand. Or maybe you've just gotten the go-ahead from your CEO and Board of the big firm you work for to begin deploying your screens, but it's going to cost $25 million to get the job done. What are the options for getting that money? Decision number one is whether to use existing cash in the bank or find new cash to fund the project. Until recently, the conventional wisdom was to minimize equity raises in favor of using cash on-hand or taking on some debt. For large companies, this continues to be an option. But for smaller companies, $25 million is way more than you have on hand or could borrow from the bank. That means finding external sources of cash.


The good news: Private investors and leasing companies are still active
The good news, you ask? Well, the stock market has become rather volatile and "safe" investments like T-bills and bonds have interest rates hovering just above 0% right now. This means that many wealthy individuals and angel investors are putting their money to work in private equity markets. Not all equity deals look good right now, of course. You'd have to be crazy (or desperate) to try going public any time in the next 12-18 months, and only the biggest, best companies are having much luck issuing new shares on the public market. But private companies with a good plan and solid executions should be able to find money out there, provided they're willing to give up a fair chunk of equity for the privilege. Also, the one sort of debt financing that still seems to be in favor is equipment leasing. Since the full amount of money is backed by assets with known retail values and depreciation curves, these debts are a bit less risky than those based on company performance or balance sheets. However, it does seem that the leasing companies have become even more careful about who they'll lend to.
The silver lining: Companies that survive in today's economy will dominate in the long-run
It's hard to imagine some good coming out of all this, but there is a silver lining: just as there are buying opportunities on the stock market during a down period, the same is true in the digital signage market. I expect to see a wave of consolidation as small networks merge together to improve their footprint and performance. Likewise, we'll continue to see a culling of weak vendors and service providers. Hopefully, a few winners will emerge over the next couple of years. These firms will be more svelte and streamlined, but also more nimble and dedicated to innovation. And if you're just starting out today, make sure to keep these same attributes in mind.
How has the economic crisis affected the growth of your business? Have you found any other unusual sources of funding? Leave a comment and let me know.
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