Robert C. Pini
CEOs of photonics and other technology companies actively sought external financing in the third quarter of 1998. According to a report by PricewaterhouseCoopers LLP, photonics and technology companies sought means to finance growth more frequently -- and more creatively -- than nontechnology firms.
Why the rush for financing? The report found three reasons. First, high-tech firms are projected to grow faster than nontechnology companies -- 7 percent faster in 1999, with an average projected growth rate of 29 percent. Second, high-tech companies may not be able to rely on cash flow to finance growth because they market overseas twice as often as nontechnology firms. That leaves their cash flow more exposed to uncertain economic environments. Third, a squeeze on profit margins may restrict the amount of cash that can be directed toward financing growth. Thirty-five percent of nontechnology companies saw their profit margins increase, compared with an anemic 14 percent of technology firms.
To get the necessary financing, high-tech companies turned to nontraditional sources three times more often than nontechnology firms: private placements, angel investors or venture capital.
Included in the survey, Polaroid Corp. in Cambridge, Mass., also sought financing in the third quarter of 1998 to cover growth this year surrounding the global rollout of a digital camera that uses its instant-film technology. According to vice president and controller Carl Lueders, Polaroid first determined its desired capital structure, or the mix between debt and equity financing. Then it compared the costs of raising capital from different sources with its short- and long-term capital needs. In the end, the company got an extended line of credit and a bank loan with interest on new debt at 11.5 percent.
The PricewaterhouseCoopers report resulted from a survey of CEOs of 448 product and service companies with revenues between $1 million and $50 million. Known as the Trendsetter Barometer, the survey was given to companies identified as the fastest-growing American businesses over the last five years.