Industrious upstarts
Typically 6–10 years old
Not seeking outside funding but growing with the funds they have
Rates of debt and equity investment are low and rare
Education on types of funding (debt vs. equity) and how to access
Outreach with funding opportunities to build trust/awareness
Education on loan/financing application process
Industrious upstarts are full of enthusiasm and promise, but access to structures or processes to support them is limited. Industrious upstarts are typically younger, smaller businesses that are figuring out the business world as they go along. Early interest from potential customers (or sometimes business plan competitions) spurs their drive, but they are not equipped to supercharge their growth trajectory on their own. Upstarts often are not aware of the financing options available to them; they need outreach and education platforms to provide entry pathways into the formal financial system.
Who
they are
What
they need
Preliminary solutions
Angel investors/incubators
Innovative, small business–focused seed equity offerings coupled with wraparound services (for instance, education services, physical resources)
Retail banks and CDFIs
Outreach campaigns to build early relationships
CDFI referral programs through which retail banks refer LOBs that are unable to pass bank lending requirements to CDFIs
CDFI support programs to prepare LOBs for bank loan applications (including to build credit)
Notable characteristics
Financing needs
Typical revenue: <$1M
Upstarts need help growing their business out of the gate and professionalizing their business plan to get access to funding as they scale. In particular, they need a relay partnership between banks and CDFIs, as well as access to small business–focused equity investment funds.
Who
they are
What
they need
Preliminary solutions
Who
they are
What
they need
Preliminary
solutions
Industrious upstarts profile: Betasoft Consulting
Rafael Betancourt
“I have been able to stay 100% booked. Now the problem is scalability, which we are trying to solve by moving into selling CAD software targeting the same customer base. I had the recent experience of the PPP [Paycheck Protection Program] loan, but besides that, I have not used any other financing. Even my business credit card is paid in full every month. Being structured as an S corporation, I don't see myself being funded via equity investments; I am also very uncomfortable with debt, so I plan to continue self-funding for the foreseeable future. My current strategy is to grow organically by hiring only as software sales pick up, as those provide a more predictable revenue stream than project-based work.”
Upstarts should be referred to CDFIs that can provide funding, wraparound services, and education to help them mature into credible, professionalized loan partners with banks.
CDFI and retail bank partnerships can also help rising stars navigate the loan process and use their business history and credit scores as strengths in their applications.
Rising stars profile: Empire Business & Tax Advisors
“Although the business continues to grow, the low season period is approaching, and we believe that we will have some difficulty in covering operating expenses during those months. We are always running with our own capital, and during the pandemic period, we received PPP through our bank, Regions Bank. We are highly respected in the community. The injection of additional funds would help us improve our facilities and expand our services.”
Angel investors/incubators
Small business–focused equity offerings
Financial guidance/leadership coaching to achieve and sustain scale
Retail banks and CDFIs
CDFI support programs to prepare LOBs for bank loan applications
Renewed, defined set of evaluation metrics and loan criteria from banks
Financing offerings to suit business needs (for instance, revenue-based repayment for high-growth, less profitable businesses and asset-based financing for businesses with weak or no financial history)
Who
they are
What
they need
Preliminary solutions
These businesses present a significant opportunity for banks to efficiently filter for top-tier loan candidates and lower total cost to serve; they need quick, simple approval, followed by revenue-based repayment or asset-backed loans. They also represent a promising opportunity for early equity investors, such as angels, which can support these businesses with both capital and coaching on how to achieve scale sustainably.
Who
they are
What
they need
Preliminary solutions
Rising stars are well-connected, growing businesses. Rising stars tend to have good credit, greater than $500,000 in revenue, and positive revenue growth. Rising stars are looking to grow, either by buying new assets or expanding. But if they hope to get to the next stage of growth and scale, they will need a new magnitude of strategic capital.
Who
they are
What
they need
Preliminary solutions
Typically >5 years old
Seek debt financing, but at low levels (less than $100,000)
Fast-growing businesses; seek financing to accelerate growth
Growth capital via equity in order to acquire new assets while protecting cash flow
Opportunities to use business history and existing assets to secure funding
Notable characteristics
Typical revenue: <$1M
Financing needs
Rising stars
CDFIs/nonprofits and equity investors can provide financial support to disentangle personal and business finances, as well as wraparound services to reform existing capital structures, refinance existing debt, and reinvest cash for growth.
Self-made start-ups profile: AB Unlimited Worldwide
Amy Williams, CEO
“We have leveraged our personal assets, and credit is closely tied to the company as majority shareholders. We raised capital when we first started and were very new to running a company. Most traditional lenders rely on the personal financial history and personal credit history of the owners, some of whom use their personal assets to infuse capital into their business to keep it running. We saw this happen during the pandemic. The owners’ credit ratings plummet as a result, and [they] can be precluded from successfully gaining funding from traditional lenders. It’s a catch-22 that lenders have yet to rectify.”
Retail banks
Renewed, defined set of evaluation metrics and loan criteria
Refreshed creditworthiness assessment based on past collateralized lending
Options to refinance existing debt and use business assets as collateral
Who
they are
What
they need
Preliminary solutions
Self-made start-ups need help reforming their capital structure to lower debt service and operating expenses. Banks can use reformed, fair loan evaluation metrics to find the healthy businesses in this group and assess their underlying assets, then refinance their existing personal loans, backed with existing business assets. Equity investors, similarly, can help this group reform their capital structure, including paying down existing debt to free up cash for reinvestment in growth.
Who
they are
What
they need
Preliminary solutions
Self-made start-ups have relied on personal financing but need help managing for cash. Typically older businesses, they’ve built businesses all on their own, often putting their personal assets on the line in the process. They’ve achieved some success despite these obstacles, but they have an acute need for working capital for the next wave of growth.
Who
they are
What
they need
Preliminary solutions
Typically >11 years old
Most rely on personal sources of financing and personal assets to secure funding
Wealth of business experience and history with funding applications
Strategic assistance to reform capital structure
Steady capital sources via equity to help manage operating expenses, including debt service
Notable characteristics
Typical revenue: <$500K
Financing needs
Self-made start-ups
CDFI/nonprofit
Financial support to disentangle personal and business finances
Wraparound services to reform existing capital structure and refinance existing debt
Banks can improve their service to this segment by offering tailored products that suit fast-growing businesses with little experience applying for traditional financing (for instance, revenue-based repayment, which capitalizes on their rapid revenue growth while recognizing their profitability struggles). This segment is ripe for angels, too, whose experience and mentoring can help guide young and hungry LOBs. But these companies aren’t as open to traditional angel arrangements, so angels will need to reach out and offer creative approaches such as convertible debt.
Young and hungry profile: Global Containers & Custom Packaging
José Ochoa
“Great profitable projects, good cash flow, and great opportunities to diversify. At the beginning of our entrepreneurial journey, we started using factoring companies (selling our invoices weekly). Then with a proven record, we asked for a working capital credit line with our local bank. Since day one, they believed in our company, business model, and expertise. My vision is to always set up our company operations, finance, and mechanics as if we are going to sell the company, even if we do not have any intentions to do that. To be honest, 2021 is exceeding my growth expectations. This is by far the best year of our company since 2009.”
Angel investors/venture capital
Early funding with coaching to scale efficiently
Convertible debt/flex equity for businesses less likely to sacrifice ownership
Retail banks and CDFIs
Partnerships with CDFIs to refer mature LOBs to banks
LOB outreach campaigns through partnerships with business management tools
Differentiated financing offerings (for instance, revenue-based repayment for less profitable but growing businesses)
Who
they are
What
they need
Preliminary solutions
Young and hungry LOBs represent the clearest opportunity for angel investors that can help them scale efficiently and get in ahead of VC, particularly with convertible debt/equity options. Banks can play a key role, too—this is a fast-growing, healthy, and untapped segment with little debt; this group needs education on the financing options available to them and on how debt can help them accelerate growth and acquire new assets.
Who
they are
What
they need
Preliminary solutions
Young and hungry LOBs are fast-growing and profitable businesses that have already achieved some scale. These young businesses have quickly cleared the $1 million revenue hurdle, with relatively little debt or equity financing. They have the potential to become unicorns with the right investments and support. But they’re not knocking down doors to obtain capital—instead, they are wary of outside investors. That reluctance to bring in outside money may limit their growth, but currently they’re less willing to sacrifice control to get it. Many are likely unaware of the various permutations of support that outside investors can bring.
Who
they are
What
they need
Preliminary solutions
Typically <10 years old
Healthy businesses with little to no financing experience
Low and rare levels of debt and equity investments
Outreach with financial products that suit this fast-growing segment
Education on the benefits of external financing
Notable characteristics
Typical revenue: $1–$5M
Financing needs
Young and hungry
Banks can rely on strong credit scores and higher revenue as indicators to find the strongest businesses in this group and provide refinancing options, utilize the existing business assets as collateral, and help this group fund new assets that can recharge growth with easier debt terms.
Homegrown operations profile: Border X Brewing
David Favela, CEO
“Initially, securing funding was not an issue, since we really never expected the company to grow. We all pitched in $6,000 and started a tiny, tiny brewery near the border. However, that plan disappeared within hours. Within hours customers drank all of our inventory. When we spoke to banks, they never lent to us, even SBA banks. My partners didn’t want to put their houses on the loan or had little to no assets to use as collateral. I sold my house to provide the initial seed money to expand. Raising capital was our biggest Achilles’ heel. Our challenge was that we never imagined growing as fast as we did.”
Venture capital and other equity funding
Specialized funds that target and earmark capital for LOBs
Distinct focus on helping businesses scale and reach next level of growth
Equity offerings structured to cap outside ownership (i.e., to preserve LOB minority-owned business status)
Retail banks
Renewed, clear creditworthiness model and defined set of evaluation metrics
Financial offerings to suit business needs (for instance, collateralize business assets, refinance capital structure)
Technological products to demonstrate creditworthiness (for instance, assist in estimating capital flows)
Who
they are
What
they need
Preliminary solutions
These mature businesses have a mixed profile of revenue growth and profitability—but overwhelmingly healthy credit. They have relied heavily on personal assets to grow to this stage, so they need help reforming their capital structure and building their balance sheet around their considerable business assets.
Who
they are
What
they need
Preliminary solutions
Homegrown operations are larger, more mature businesses, with the founder still deeply embedded financially via personal assets. The business is, in some ways, an extension of the founder’s identity. But the next stage of growth eludes them without a capital injection to fuel it.
Who
they are
What
they need
Preliminary solutions
Typically >10 years old
Established businesses with high levels of debt and equity
Business finances heavily intertwined with personal finances
Fair, clear loan assessment criteria to provide growth capital
Resources to professionalize businesses and reform asset structure
Notable characteristics
Typical revenue: $1–$5M
Financing needs
Homegrown operations
Venture capital and private equity firms (for the larger assets) can offer strategy and coaching to accelerate the growth of these stalled businesses, with specialized funds to target and reach LOBs. These LOBs will be wary of giving away too much equity and losing minority-owned business status, so investors should consider reduced equity offerings.
Stalled at scale profile: EC Hispanic Media
Martha de la Torre
“We launched the business with outside funding in 1988. The family and close friends provided additional capital or sweat equity in the first 10 years of operation. Once cash flow turned positive in 1996, funding has been only through traditional banks for mortgages and lines of credit. Our growth has been self-funded through operational cash flow and sold investments, such as real estate. EC does not need capital. We need help designing an exit strategy that rewards our employees, ensures that our legacy company lasts, and that enables the hiring of key professional leaders to guide our existing talent to the next level of success past $60 million.”
Venture capital and other equity funding
Specialized funds that target and earmark capital
for LOBs
Strategy and coaching to accelerate growth
and restructure capital
Equity offerings structured to cap outside ownership (i.e., to preserve LOB minority-owned business status)
Retail banks
Renewed, defined set of evaluation metrics and creditworthiness model
Asset-based financing for larger businesses with a wealth of assets but low financial capital/history
Who
they are
What
they need
Preliminary solutions
There is clear opportunity for an equity player to improve margins, accelerate growth, and/or identify synergies with other portfolio holdings. Some of these older businesses have a wealth of assets, but their financial capital is tied up in daily operations; retail banks can target this segment with asset-based financing options and provide growth capital as well.
Who
they are
What
they need
Preliminary solutions
These are established, scaled businesses that have hit a growth plateau and are ready to explore new avenues of expansion. This is a healthy set of older businesses with higher revenue, defined by excellent credit. They may need help refreshing their strategy and identifying new markets or expansion opportunities.
Who
they are
What
they need
Preliminary solutions
Typically >10 years old
Most seek debt financing, but at low levels (less than $100,000)
Struggling with profitability and growth, with a wealth of business assets
Strategic funding to unlock new, unforeseen channels of growth
Growth equity funding from organizational equity sources
Notable characteristics
Typical revenue: $1–$5M
Financing needs
Stalled at scale
Who
they are
What
they need
Preliminary
solutions
Who
they are
What
they need
Preliminary
solutions
Upstarts should be referred to CDFIs that can provide funding, wraparound services, and education to help them mature into credible, professionalized loan partners with banks.
Industrious upstarts profile
“Being structured as an S-corp, I don't see myself being funded via equity investments. I am also
very uncomfortable with debt, so I plan to continue self-funding for the foreseeable future. I am not sure how interested an investor would be in my business model as it is structured as an owner-operated business right now.”
Angel investors/incubators
Innovative, small-business focused equity offerings coupled with wraparound services (e.g., education services, physical resources)
Retail banks and CDFIs
Outreach campaigns to build early relationships
CDFI referral programs through which retail banks refer LOBs that are unable to pass bank lending requirements to CDFIs
CDFI support programs to prepare LOBs for bank loan applications (including to build credit)
Who
they are
What
they need
Preliminary
solutions
Upstarts need help growing their business out of the gate and professionalizing their business plan to get access to bank funding as they scale. In particular, they need a relay partnership between banks and CDFIs, as well as access to small business–focused equity investment funds.
Who
they are
What
they need
Preliminary
solutions
Industrious upstarts are full of enthusiasm and promise, but access to structures or processes to support them is limited. Industrious upstarts are typically younger, smaller businesses that are figuring out the business world as they go along. Early interest from potential customers (or sometimes business plan competitions) spurs their drive, but they are not equipped to supercharge their growth trajectory on their own. Upstarts often are not aware of the financing options available to them; they need outreach and education platforms to provide entry pathways into the formal financial system.
Who
they are
What
they need
Preliminary
solutions
Not seeking outside funding but growing with the funds they have
Rates of debt and equity in business are low and rare
Outreach with funding opportunities to build trust/awareness
Education on loan/financing application process
Notable characteristics
Typical revenue: <$1M
Financing needs
Industrious
upstarts
CDFI and retail bank partnerships can also help rising stars navigate the loan process and use their business history and credit scores as strengths in their applications.
Rising star profile
“Although the business continues to grow, the low season period is approaching, and we believe that we will have some difficulty in covering operating expenses during those months,” Edna shared with us. “We are always running with our own capital, and during the pandemic period, we received PPP through our bank, Regions Bank.” But if they hope to get to the next stage of growth and scale, they will need a new magnitude of strategic capital. “We are highly respected in the community. The injection of additional funds would help us improve our facilities and expand our services.”
Retail banks and CDFIs
CDFI support programs to prepare LOBs for bank loan applications
Renewed, defined set of evaluation metrics and loan criteria from banks
Financing offerings to suit business needs (e.g., revenue-based repayment for high-growth, unprofitable businesses and asset-based financing for businesses with weak or no financial history)
Who
they are
What
they need
Preliminary
solutions
These businesses present a significant opportunity for banks to efficiently filter for top-tier loan candidates and lower total cost to serve; they need quick, simple approval, followed by revenue-based repayment or asset-backed loans.
Who
they are
What
they need
Preliminary
solutions
Rising stars are well-connected, growing businesses. Rising stars tend to have good credit, greater than $500,000 in revenue, and positive revenue growth. Rising stars are looking to grow, either by buying new assets or expanding. But if they hope to get to the next stage of growth and scale, they will need a new magnitude of strategic capital.
Who
they are
What
they need
Preliminary
solutions
Seek debt financing, but at low levels
(less than $100,000)
Fast-growing businesses; seek financing to accelerate growth
Growth capital via equity in order to acquire new assets while protecting cash flow
Opportunities to use business history and existing assets to secure funding
Notable characteristics
Typical revenue: <$1M
Financing needs
Rising
star
Retail banks
Renewed, defined set of evaluation metrics and loan criteria
Refreshed creditworthiness assessment based on past collateralized lending
Options to refinance existing debt and use business assets as collateral
Santa Clara, California
Electronic engineering design services to the semiconductor industry
Edna Mendez
Kissimmee, Florida
Las Vegas, Nevada
Marketing resource agency, consulting in marketing and event collateral
El Paso, Texas
San Diego, California
Norwalk, California
Amy Williams, CEO
Las Vegas, Nevada
Marketing resource agency, consulting in marketing and event collateral
CDFIs/nonprofits and equity investors can provide financial support to disentangle personal and business finances, as well as wraparound services to reform existing capital structures, refinance existing debt, and reinvest cash for growth.
“We have leveraged our personal assets, and credit is closely tied to the company as majority shareholders. We raised capital when we first started and were very new to running a company. Most traditional lenders rely on the personal financial history and personal credit history of the owners, some of whom use their personal assets to infuse capital into their business to keep it running. We saw this happen during the pandemic. The owners’ credit ratings plummet as a result, and [they] can be precluded from successfully gaining funding from traditional lenders. It’s a catch-22 that lenders have yet to rectify.”
José Ochoa
El Paso, Texas
Self-made start-ups profile: AB Unlimited Worldwide
Retail banks
Renewed, defined set of evaluation metrics and loan criteria
Refreshed creditworthiness assessment based on past collateralized lending
Options to refinance existing debt and use business assets as collateral
CDFI/nonprofit
Financial support to disentangle personal and business finances
Wraparound services to reform existing capital structure and refinance existing debt
Who
they are
What
they need
Preliminary
solutions
Self-made start-ups need help reforming their capital structure to lower debt service and operating expenses. Banks can use reformed, fair loan evaluation metrics to find the healthy businesses in this group and assess their underlying assets, then refinance their existing personal loans, backed with existing business assets. Equity investors, similarly, can help this group reform their capital structure, including paying down existing debt to free up cash for reinvestment in growth.
Who
they are
What
they need
Preliminary
solutions
Self-made start-ups have relied on personal financing but need help managing for cash. Typically older businesses, they’ve built businesses all on their own, often putting their personal assets on the line in the process. They’ve achieved some success despite these obstacles, but they have an acute need for working capital for the next wave of growth.
Who
they are
What
they need
Preliminary
solutions
Most rely on personal sources of financing and personal assets to secure funding
Wealth of business experience and history with funding applications
Strategic assistance to reform capital structure
Steady capital sources via equity to help manage operating expenses, including debt service
Notable characteristics
Typical revenue: <$500K
Financing needs
Self-made
start-ups
Banks can improve their service to this segment by offering tailored products that suit fast-growing businesses with little experience applying for traditional financing (for instance, revenue-based repayment, which capitalizes on their rapid revenue growth while recognizing their profitability struggles). This segment is ripe for angels, too, whose experience and mentoring can help guide young and hungry LOBs. But these companies aren’t looking for angels, so angels will need to reach out and offer creative approaches such as convertible debt.
“Great profitable projects, good cash flow, and great opportunities to diversify. At the beginning of our entrepreneurial journey, we started using factoring companies (selling our invoices weekly). Then with a proven record, we asked for a working capital credit line with our local bank. Since day one, they believed in our company, business model, and expertise. My vision is to always set up our company operations, finance, and mechanics as if we are going to sell the company, even if we do not have any intentions to do that. To be honest, 2021 is exceeding my growth expectations. This is by far the best year of our company since 2009.”
David Favela, CEO
San Diego, California
Young and hungry profile: Global Containers & Custom Packaging
Angel investors/venture capital
Early funding with coaching to scale efficiently
Convertible debt/flex equity for businesses less likely to sacrifice ownership
Who
they are
What
they need
Preliminary
solutions
Young and hungry LOBs represent the clearest opportunity for angel investors that can help them scale efficiently and get in ahead of PE and VC, particularly with convertible debt/equity options. Banks can play a key role, too—this is a fast-growing, healthy, and untapped segment with little debt; this group needs education on the financing options available to them and on how debt can help them accelerate growth and acquire new assets.
Who
they are
What
they need
Preliminary
solutions
Young and hungry LOBs are fast-growing and profitable businesses that have already achieved some scale. These young businesses have quickly cleared the $1 million revenue hurdle, with very little debt or equity financing. They have the potential to become unicorns with the right investments and support. But they’re not knocking down doors to obtain capital—instead, they are wary of outside investors. That reluctance to bring in outside money may limit their growth, but they’re not willing to sacrifice control to get it. They may not be aware of the various permutations of support that outside investors can bring, however.
Who
they are
What
they need
Preliminary
solutions
Healthy businesses with little to no financing experience
Low and rare levels of debt and equity investments
Outreach with financial products that suit this fast-growing segment
Education on the benefits of external financing
Notable characteristics
Typical revenue: $1–5M
Financing needs
Young and hungry
Private equity
Specialized funds that target and earmark capital for LOBs
Distinct focus on helping businesses scale and reach next level of growth
Equity offerings structured to cap outside ownership (i.e., to preserve LOB minority-owned business status)
Banks can rely on strong credit scores and higher revenue as indicators to find the strongest businesses in this group and provide refinancing options, utilize the existing business assets as collateral, and help this group fund new assets that can recharge growth with easier debt terms.
“Initially, securing funding was not an issue, since we really never expected the company to grow. We all pitched in $6,000 and started a tiny, tiny brewery near the border. However, that plan disappeared within hours. Within hours customers drank all of our inventory. When we spoke to banks, they never lent to us, even SBA banks. My partners didn’t want to put their houses on the loan or had little to no assets to use as collateral. I sold my house to provide the initial seed money to expand. Raising capital was our biggest Achilles’ heel. Our challenge was that we never imagined growing as fast as we did.”
Martha de la Torre
Norwalk, California
Homegrown operations profile:
Border X Brewing
Private equity
Specialized funds that target and earmark capital for LOBs
Distinct focus on helping businesses scale and reach next level of growth
Equity offerings structured to cap outside ownership
(i.e., to preserve LOB minority-owned business status)
Retail banks
Renewed, clear creditworthiness model and defined set of evaluation metrics
Financial offerings to suit business needs (for instance, collateralize business assets, refinance capital structure)
Technological products to demonstrate creditworthiness (for instance, assist in estimating capital flows)
Who
they are
What
they need
Preliminary
solutions
These mature businesses have a mixed profile of revenue growth and profitability—but overwhelmingly healthy credit. They have relied heavily on personal assets to grow to this stage, so they need help reforming their capital structure and building their balance sheet around their considerable business assets.
Who
they are
What
they need
Preliminary
solutions
Homegrown operations are larger, more mature businesses, with the founder still deeply embedded financially via personal assets. The business is, in some ways, an extension of the founder’s identity. But the next stage of growth eludes them without a capital injection to fuel it.
Who
they are
What
they need
Preliminary
solutions
Established businesses with high levels of debt and equity
Business finances heavily intertwined with personal finances
Fair, clear loan assessment criteria to provide growth capital
Resources to professionalize businesses and reform asset structure
Notable characteristics
Typical revenue: $1–5M
Financing needs
Homegrown operations
