We offer our portfolio company management teams two bites of the apple – sell some to me now, then let’s work on growing and exiting together later. Typically some or all of the money we put in goes out to the existing management team/shareholders.

There are also mezzanine lenders who give you subordinated debt, where sometimes you only need to pay interest and can pay all the principal in a balloon payment 2-5 years down the road. This can be a really attractive form of capital – and the amount of equity dilution can be very small. BUT you need to have a business with good cash flows. Most mezz lenders won’t touch anything less than $3mm EBITDA

Finally, you have senior lenders. If you are growing rapidly and have turned profitable but have more and more cash getting tied up in AR, an alternative to raising more equity is getting a line of credit collateralized against your AR. No dilution and pretty cheap cash (especially in this interest rate environment).

Its always amazing to me how little the VC and Private Equity communities work together and also how often entrepreneurs make a beeline towards the VC community without considering whether there are other sources of capital that could be better alternatives.