Chapter 1: Introduction and OverviewAccess to capital is a significant barrier to the growth of new and expanding recycling enterprises. This publication is designed to make the process of identifying and securing new sources of capital for these ventures more efficient.
The Value of Recycling BusinessesFostering recycling entrepreneurship can strengthen our countrys economy and environment. New recycling companies are inventing ways of recovering and reusing more and more of the materials that we previously wasted. In the process, they are creating jobs and wealth in our communities. They are ensuring that all of the materials collected from our homes and businesses are productively remanufactured. They are also making all of our industries and nation more self-reliant and efficient.
Helping recycling ventures succeed is a worthy goal, which can be achieved through many different strategies. This Guide is designed to help these businesses identify and obtain the capital needed for growth.
Access to Capital: A Small Business ConcernRecycling companies are not unique in having difficulty finding the funds to start up and expand. Indeed, improving capital formation is a perennial top priority of small and entrepreneurial business participants in the ongoing White House Conferences on Small Business.(1) The 1995 Survey of Small and Mid-Sized Businesses by Arthur Andersens Enterprise Group and National Small Business United found that 23% of existing small and mid-size companies could not obtain adequate financing in 1995. The survey further documented that new or growing companies face financing problems at every phase of their expansion. The Federal Reserve Bank also has documented that the existing financing system in the United States ranges from limited financing options for small businesses to a well organized system for large businesses.(2)
The Need to Finance Recycling Innovation
Access to capital is often even more difficult for small and emerging companies in the recycling industry. Financiers are wary of any venture in a relatively new or unfamiliar industry and for which standardized bench marking data is not available. Some investors also may be concerned about the volatility of the markets for certain recovered materials and the ability of unproven recycling companies to ensure reliable and growing profitability. Finally, potential providers of capital may assume that recycling companies are relying for business success on governmental regulations that may be changed or weakened at the whim of the legislative process.
Although these concerns have been addressed by many recycling, composting, reuse and remanufacturing enterprises,(3) they still represent obstacles to the entrepreneurial growth of this industry.(4) In a 1994 survey of recycling enterprises in North Carolina, 38% of responding companies cited limited access to capital and 29% listed cash flow problems as their main obstacles to growth. Similar research in other states has identified enhancing access to capital as a key to fostering the growth of recycling companies, especially start-up and small expanding companies developing new products, services, and markets.
Fostering access to capital is particularly important for those start-up and small firms that provide much of the innovation in the emerging recycling industry. Raising smaller amounts of funds for young companies is often more difficult than raising larger amounts for more established firms. However, recycling innovators can take tips from other successful business sectors on capitalizing their businesses.
Entrepreneurs and economic developers can utilize a portfolio of approaches to meet business financing needs. As this Guide explains, these can include thorough business planning, the Small Corporate Offering Registrations (SCORs) and other financing structures, and investment forums and networks. Other sources not extensively discussed in this Guide, but which have an important role to play, include: banks, recycling loan funds and governmental finance programs. Together, these strategies and resources can ensure that sufficient capital allows the recycling industry to sustain its growth and innovation.
How This Guide Can Help
This guide was developed to be a resource for recycling entrepreneurs and economic developers who work to foster the recycling industry. It presents new strategies that have been developed to make capital markets work more efficiently for small companies in general and recycling companies specifically.
This publication is not intended to serve as a stand alone business financing manual. However, the Guide does provide references to several excellent publications that effectively serve that purpose, in the Resources section at the end of Chapters 2 and 3. In the end of Chapter 5, the Guide also lists associations of small business centers, financial associations, incubators and other service providers that can provide business planning and financing assistance in a companys region.
The particular contribution of this Guide is to highlight innovative approaches to fostering capital formation for emerging companies that have developed recently and are not widely known. These include investment forums, meetings and networks, as profiled in Chapters 4 and 5, as well as new equity financing structures, such as the SCORs profiled in Chapter 3.
This guide does not focus extensively on debt financing. However, the reader is directed to some of the US Small Business Administrations fine resources on this topic in Chapter 3.
A summary of the contents of each chapter is provided below.
Chapter 2: Recycling Business Planning, focuses on the building and documenting of business strengths necessary for a recycling enterprise to attract significant investment. The chapter is addressed to the entrepreneur who is writing a business plan. Areas that should be addressed in the plan include the companys mission and history, the management team, marketing, operations and financing.
Chapter 3: Business Financing Strategies provides entrepreneurs and economic developers ways to identify a wide range of potential financial partners for recycling companies. The important role that individual angel investors can play in meeting the equity demands of expanding companies is highlighted. Cost-effective methods for capitalization are also reviewed, including sales of company securities complying with Securities and Exchange Commission (SEC) small business exemption regulations. Small Corporate Offering Registrations (SCOR offerings), in particular, are highlighted as one increasingly popular means for entrepreneurs raising less than one million dollars per year to attract a broad range of smaller, private investors.
Chapter 4: Recycling Investment Forums provides recommendations for economic developers and prospective forum organizers on the design of recycling-specific investment forums, based on the earlier Recycling Venture Forum Study, the Southeast Recycling Investment Forum conducted in November 1995 and the Northeast Recycling Investment Forum conducted in May 1996.
Chapter 5: Investment Forum, Meeting, Network and Association Directory provides a listing of more than 100 investment forums, meetings and networks that have developed across the country to help entrepreneurs, investors and service providers find compatible partners. Contact information and brief descriptions are provided for each organization. The event descriptions help to give entrepreneurs and economic developers an understanding of the many strategies that have evolved for fostering small business capital formation and entrepreneurship across the country. The chapter concludes with a listing of national financial and entrepreneurial trade associations and federal government finance agencies.
- The White House Conference on Small Business-Issues Handbook, Office of Advocacy, US Small Business Administration, April 1994, p. 17.
- Smith, Brad, WBS&A, Ltd. Strategic Consulting Services, Capitalizing a Small Business Using SCOR Seminar speech, Houston, Texas, January 25, 1995.
- Throughout this document, recycling company is used to refer to a business involved with the reuse, recycling or composting of recovered materials.
- Kirkpatrick, David, North Carolina Business Study, NC Office of Waste Reduction and Self-Help, 1995, p. 15.