How to Score Funding Without VCs

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For the strategic partner you are a gateway into a new market and an acquisition opportunity. At the same time, they can provide you with a new sales channel and act as a big brother and help out in times of need. Be careful that you don't disclose too much information without protective legal agreements and that you don't sign your future away. Hire a good lawyer before you start negotiations.

2. Selling for survival. The single best way of raising capital is by selling your products. You should turn every employee into a "selling machine" and focus on closing deals (see BusinessWeek.com, 7/12/05, "Selling for Survival").

Stage IV. When you've got a great product, a business model that works, and a management team that is itching to take over the world, you will need big money. Michael Guptan, managing director of investment firm Stanford Group, says that this may be the best time to consider being acquired by the right strategic partner or engaging in a "reverse merger." Your options:

1. Acquisition. Building a national or global sales channel and creating the necessary support infrastructure can be very costly. It may make sense to sell your company to a bigger player that already has this system in place. You may be able to negotiate a deal where you and your employees maintain some level of autonomy and incentives for success.

2. Reverse merger. In a reverse merger, you identify a public shell, a publicly listed company with no assets or liabilities, and merge your private company into this shell. After this process, you become a public company and you can attract financing from hedge funds and private equity funds, as well as from retail investors. Guptan says that if you can demonstrate that you have the management team to manage a public company and the vision to scale the business through acquisitions, you will have access to some of the leading funds at attractive rates.

Stage V. When your company has achieved critical mass with steady and predictable sales growth, it is time to consider an initial public offering (IPO). There is a lot of preparation and planning that goes into an IPO. But by this stage, you'll find investment firms tripping over each other to offer you money.

1. Mezzanine financing. This is usually high-interest debt financing to tide the company over until it completes an IPO. The advantage is that doesn't require giving up an interest in the company.

If you have made it this far, your company has graduated from being a small business to a mid-size business. Now it's time to start planning on how you're going to become a big business.

Vivek Wadhwa, a former tech entrepreneur, is the Wertheim Fellow at the Harvard Law School and an executive-in-residence at Duke University. He writes a column on policy issues affecting entrepreneurs every month.