I have reviewed many Business Plans for digital signage most are written by individuals savvy on the technical side but lacking in the understanding of capital markets.
Financing Companies:
Are looking for cash flow and an exit strategy if the model is unsuccessful.
Investors
Are seeking a much higher return and will want a percentage of the company.
The successful launches occur when there is a realistic understanding of the risks and rewards. What each party brings to the table. Coordination of the strengths and weaknesses of the client the digital signage company and the respective vendors.
Leasing is an option if the lessee is an acceptable credit risk. It is generally not an option for new companies or new concepts. When a leasing company sees collateral spread over a few hundred to a few thousand locations the credit of the end user has to be very strong as the collaterall cannot be recovered in an economically viable manner, Lendors and Leasing companies view this as an unsecured loan or lease.
Raising Capital: I have seen a lot written about ROI to the client. Not to the Investor. If you cannot explain how you are going to build the company and repay the investor in a 2 minute or less elevator speech you are spinning your wheels. The markets are tough and your competition is not other digital signage companies it is everyone trying to raise cash. There is a limited pool of investors and an abundance of companies seeking capital.
If you raise equity you have to show an above average economic return to the investor for his risk. The business plan has to show an exit strategy. The return to the investor should be between 30-40% per anum. That means for every $1,000,000 invested the return should be about $2.6 million after 3 years and $4.5 Million after 5 years. The exit strategy is usually based on the sale of the company. In addition to the cost you will be giving a percentage of your company away, You are now reporting to a Board of Directors who are going to ask tough questions on a regular basis.
Ths is the only industry where companies of 2-10 people attempt to raise equity and debt to deploy millions of dollars on their own and put their equipment in a Fortune 1,000 company. Would a mortgage lender give you money to build a house on someone else’s property? Not without an ironclad lease that exceeds the term of the debt.
Many companies miss the opportunity as they are not open to reviewing strategic relationships along the way.
Or
Are afraid to discuss creative financing options with there clients in a true partnership fashion.
Pease contact me with any questions. I have been an investor, lender, owner and advisor for Digital Signage.
Bob Burtis
bburtis@viranet.com
Article Source: http://www.digitalsignageblog.com/2008/07/20/digital-signage-purchasing-outright-vs-leased-vs-rental/comment-page-1/#comment-30600
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