Dr Judith MS Mark
Financing growth is essential for scaling small-and medium-sized enterprises (SMEs) in TT. Despite recent innovations in financing, many continue to rely on traditional funding sources, primarily because of gaps in financial literacy and access to equity networks.
From angel investors and venture capital to government-backed funds, the range of innovative financing solutions is growing, each offering unique pathways to expansion.
This guide reviews the local equity options available to facilitate advancement in scalable and growth-oriented SMEs.
Effective growth financing aims to align the cost and flexibility of the financing structure with the company’s growth potential and cash flow.
As companies scale, the financing instruments often vary based on the firm’s profile. Notwithstanding, there is a general financing path for firms.
This is demonstrated in the financing lifecycle diagram. Lasrado’s 2013 diagram is still relevant today, as it provides valuable insights into the financing lifecycle for growing businesses.
It outlines key stages and funding sources tailored to the unique needs of companies as they scale, helping to clarify the financial instruments best suited for the different stages and supporting sustainable growth. Four equity sources – angels, venture capital, private equity and initial public offerings (IPOs) – are discussed below in the context of TT.
Angel investors are typically high-net-worth individuals who provide financial capital to companies to support growth.
Angel investing in TT continues to be a closed-circuit activity available to entrepreneurs in a given social network.
Venture capital (VC) is usually invested in firms with the potential for high growth and returns.
A key characteristic of VC is the advisory services which accompany the funds. VC providers generally fund niche areas with the potential to scale.
The key to success is the relationship defined in the shareholder’s agreement.
[caption id="attachment_1134360" align="aligncenter" width="269"] Dr Judith MS Mark, business strategy and enterprise development consultant and lecturer. -[/caption]
Private equity (PE) investments are beneficial interests in privately held companies.
SMEs seeking growth finance in TT are generally reluctant to engage in external equity financing. This is primarily because of concerns over access to information, outsiders’ influence and mistrust issues that can limit the growth potential of these SMEs.
Initial public offerings (IPOs) allow growth firms to raise capital from a large pool of individual and institutional investors.
IPOs should be pursued when SMEs have adequate governance and management systems and openness to disclosure.
The financing dilemma: Understanding SME funding sources
A review of the financial landscape suggests a muted appetite for equity-based financing.
The absence of equity networks and gaps in financial literacy programmes have contributed to SMEs’ continued use of traditional sources.
Internal funding is p
