q1 2016 pca index results - full report

A Higher Degree of You02.22.16

First Quarter 2016Craig Everett, Ph.D.

Director, Pepperdine Private Capital Markets Project

A Higher Degree of You

bschool.pepperdine.edu/accesscapital

© 2012-2016 Pepperdine University. All rights reserved. Pepperdine Private Capital Access Index (“PCA Index”) is a trademark of Pepperdine University. PCA Index content is the intellectual property of Pepperdine University or its third party content providers. Any copying, republication or redistribution of PCA Index content, including but not limited to caching, framing or similar means, is expressly prohibited without the prior written consent of Pepperdine University. Pepperdine University shall not be liable for any errors, omissions or delays in PCA Index content, or for any actions taken in reliance thereon.

PUBLISHED BY

ACKNOWLEDGEMENTS

I’d also like to thank the following people at The Graziadio School of Business and Management for their contributions:

David M. Smith, Ph.D.Dean

John K. Paglia, Ph.D.Associate Dean, Associate Professor of Finance

Lisa PerryDirector, Marketing and Communications

Irina ShaykhutdinovaResearch Associate

This research was made possible with the support of Dun & Bradstreet.

DUN & BRADSTREET

Jeffrey StibelVice Chairman

Judy Hackett, Chief Marketing Officer

Aaron StibelChief Technology Officer

Heather HerndonDirector, Marketing and Communications

Lauren SimpsonMarketing and Communications Manager

Bernice BrennanManager, Creative Services & Marketing Communications

Ben PollockMarketing Manager

I. About the Private Capital Access (PCA) Index……...….…6

II. Demand for external financing……………………..….….15

III. Accessibility/success rate of raising new capital……...…27

IV. Expected demand for external financing……………..…..40

V. Expected capital access (success) rates……………..….45

VI. Hiring/growth outlooks and financing failure impacts…51

VII. About the respondents…………………………………..…74

TABLE OF CONTENTS

The Pepperdine Private Capital Access Index (PCA) is a quarterly indicator produced by the Graziadio School of Business and

Management at Pepperdine University, and with the support of Dun & Bradstreet. The index is designed to measure the demand

for, activity, and health of the private capital markets. The purpose of the PCA Index is to gauge the demand of small and

medium-sized businesses for financing needs, the level of accessibility of private capital, and the transparency and efficiency of

private financing markets.

I. ABOUT THE PRIVATE CAPITAL ACCESS (PCA) INDEX

• 40 questions• Invite to participate distributed to sample from Dun & Bradstreet’s business database

• 2,469 completed responses • Where relevant, responses are segmented by revenues sizes (<$5 million; $5 million to $100 million)• Responses collected from February 2 – February 19, 2016

ABOUT THE Q1 2016 PRIVATE CAPITAL ACCESS (PCA) INDEX SURVEY

PRIVATE CAPITAL ACCESS (PCA) AND PRIVATE CAPITAL DEMAND (PCD) INDEX RESULTS - WHOLE SAMPLE

PRIVATE CAPITAL ACCESS (PCA) AND PRIVATE CAPITAL DEMAND (PCD) INDEX RESULTS – WHOLE SAMPLE

2012-Q2

2012-Q3

2012-Q4

2013-Q1

2013-Q2

2013-Q3

2013-Q4

2014-Q1

2014-Q2

2014-Q3

2014-Q4

2015-Q1

2015-Q2

2015-Q3

2015-Q4

2016-Q1

0102030405060708090

SMALL BUSINESS PCA AND PCD INDEX RESULTS (< $5M IN REVENUES)

2012-Q2

2012-Q3

2012-Q4

2013-Q1

2013-Q2

2013-Q3

2013-Q4

2014-Q1

2014-Q2

2014-Q3

2014-Q4

2015-Q1

2015-Q2

2015-Q3

2015-Q4

2016-Q1

0102030405060708090

LOWER MIDDLE MARKET PCA AND PCD INDEX RESULTS ($5M – $100M IN REVENUES)

2012-Q2

2012-Q3

2012-Q4

2013-Q1

2013-Q2

2013-Q3

2013-Q4

2014-Q1

2014-Q2

2014-Q3

2014-Q4

2015-Q1

2015-Q2

2015-Q3

2015-Q4

2016-Q1

0102030405060708090

ANNUAL REVENUE CHANGE EXPECTATIONS BY REVENUE SIZE

Q3, 2012

Q4, 2012

Q1, 2013

Q2, 2013

Q3, 2013

Q4, 2013

Q1, 2014

Q2, 2014

Q3, 2014

Q4, 2014

Q1, 2015

Q2, 2015

Q3, 2015

Q4, 2015

Q1, 2016

II. DEMAND FOR EXTERNAL FINANCING

DEMAND FOR FINANCING BY PURPOSE (% WITH ANY NEED REPORTED)

0%20%40%60%80%

STRENGTH OF DEMAND FOR FINANCING (AMONG THOSE INDICATING DEMAND)

Scale 1-4: slight, moderate, high, extremely high need

0.01.02.03.04.0

RESPONDENTS INDICATING HIGH AND EXTREMELY HIGH DEMAND FOR FINANCING (AMONG THOSE INDICATING DEMAND)

HOW MUCH FINANCING RESPONDENTS ARE SEEKING

Less t

han $5,000

$5,000 - $9,999

$10,000 - 24,999

$25,000 - $49,999

$50,000 - $99,999

$100,000 - $499,999

$500,000 - $999,999

$1 milli

on - $1.999 m

illion

$2 milli

on - $4.999 m

illion

$5 milli

on - $9.999 m

illion

$10 milli

on - $24.999 m

illion

$25 milli

on - $49.999 m

illion

$100 milli

on or more

0%20%40%60%80%

PERCENTAGE INDICATING “YES” TO “IS THE CURRENT BUSINESS FINANCING ENVIRONMENT RESTRICTING…”

Growth opportunities for your business? Your ability to hire new employees?0%

100%58%

50%61%

33%19%

Whole sample < $5 million $5 -$100 million

HOW DID RESPONDENTS BUSINESS OPERATE IN THE LAST QUARTER

profit break even loss0%

RESPONDENTS PRIMARY SOURCE OF CREDIT IN THE LAST QUARTER

Community ban

Credit u

nionCDFI

Online l

Trade c

redit p

rovider

ds/fam

ilyOther

No cred

WHY WAS THAT THE PRIMARY SOURCE OF CREDIT IN LAST QUARTER

I was able to qualify for it

It had a reasonable interest rate

I intended to use it only as a reserve

The payments were affordable

I did not qualify for other sources of

financing

WHAT WAS RESPONDENTS BUSINESS’ MOST DIFFICULT CHALLENGE IN THE LAST QUARTER

0%20%40%60%80%

PERCENTAGE OF BUSINESSES THAT HAVE FINANCING COMING FROM OUTSIDE SOURCES

Whole sample < $5 million $5 -$100 million0%

41% 38%

PERCENTAGE OF RESPONDENTS WHO ATTEMPTED TO RAISE OUTSIDE FINANCING

IN THE LAST THREE MONTHS

Whole sample < $5 million $5 -$100 million0%

32% 32% 30%

III. ACCESSIBILITY/SUCCESS RATE

IS IT DIFFICULT OR EASY TO RAISE NEW EXTERNAL FINANCING?

Equity financing Debt financing

Difficult Neither difficult nor easy

Easy0%

Difficu

Neither

difficu

lt nor e

asy Easy

0%20%40%60%80%

FINANCING SUCCESS RATES BY TYPE AND BUSINESS SIZE FOR PRIOR THREE MONTHS

ds and fa

Crowd funding (

equity

Credit c

ard - p

Credit c

ard - b

Bank l

oan - b

Asset b

ased le

repara

tion compan

Merchan

t cash

Vent. c

Mezz. le

nder0%

20%40%60%80%

BANK LOANS: FINANCING SUCCESS RATES BY BUSINESS SIZE FOR PRIOR THREE MONTHS

Q2, 2012

Q3, 2012

Q4, 2012

Q1, 2013

Q2, 2013

Q3, 2013

Q4, 2013

Q1, 2014

Q2, 2014

Q3, 2014

Q4, 2014

Q1, 2015

Q2, 2015

Q3, 2015

Q4, 2015

Q1, 2016

ASSET BASED LOANS: FINANCING SUCCESS RATES BY BUSINESS SIZE FOR PRIOR THREE MONTHS

Q2, 2012

Q3, 2012

Q4, 2012

Q1, 2013

Q2, 2013

Q3, 2013

Q4, 2013

Q1, 2014

Q2, 2014

Q3, 2014

Q4, 2014

Q1, 2015

Q2, 2015

Q3, 2015

Q4, 2015

Q1, 2016

PERCENTAGE OF RESPONDENTS WHO SUCCESSFULLY SECURED A SBA BACKED LOAN IN THE LAST THREE MONTHS

ds and fa

Crowd funding (

equity

Credit c

ard - p

Credit c

ard - b

Bank l

oan - b

Asset b

ased le

rep. co

Merch. ca

sh advan

Vent. c

Mezz. le

nder0.0%

20.0%40.0%60.0%80.0%

100.0%

PERCENTAGE OF RESPONDENTS THAT HAVE CONSIDERED SBA LOAN FOR THEIR BUSINESSES

Whole sample < $5 million $5 million -$100 million0%

45% 48%

PERCENTAGE OF RESPONDENTS THAT HAVE SUCESSFULLY SECURED SBA BACKED LOAN IN THE LAST THREE MONTHS

2% 1% 2%

PERCENTAGE OF THOSE WHO ATTEMPTED TO RAISE FINANCING BY TYPE OF FINANCING FOR PRIOR THREE MONTHS

ds and fa

Crowd funding (

equity

Credit c

ard - p

Credit c

ard - b

Bank l

oan - b

Asset b

ased le

rep. co

Merch. ca

sh advan

Vent. c

Mezz. le

nder0.0%

20.0%40.0%60.0%80.0%

100.0%

MAIN PURPOSE FOR RAISING OR ATTEMPTING TO RAISE FINANCING

0%20%40%60%80%

REASONS FOR BUSINESSES NOT ATTEMPTING TO RAISE EXTERNAL FINANCING (MULTIPLE SELECTIONS)

Enough

cash flow

Sufficie

nt finan

cing i

n place

Business

would be r

ejecte

Lack o

ertise

Weak e

conomy

Not enough

Waiting f

or chea

per finan

of contro

l / flexi

bility

operation / l

iquidateOther

0%20%40%60%80%

PERCENTAGE OF OWNERS WHO TRANSFERRED PERSONAL ASSETS TO BUSINESS OVER PRIOR THREE MONTHS

Yes No Unsure0%

10%20%30%40%50%60%70%80%90%

Whole sample < $5 million $5 -$100 million

TYPES OF PERSONAL ASSETS TRANSFERRED TO BUSINESS DURING PRIOR THREE MONTHS

(MULTIPLE SELECTIONS)

Personal sav-ings / invest-

Personal credit card purchases

Personal loan Cash from the sale of personal

assets

Home equity loan

Other0%

IV. EXPECTED DEMAND FOR EXTERNAL FINANCING

PERCENTAGE OF BUSINESSES PLANNING TO RAISE FINANCING IN THE NEXT SIX MONTHS

Yes No Unsure0%

37% 42%

38% 39%

22%26%

Whole sample < $5 million $5 million -$100 million

PERCENTAGE OF RESPONDENTS INDICATING DEMAND FOR NEW FINANCING IN THE NEXT SIX MONTHS

STRENGTH OF EXPECTED DEMAND FOR NEW EXTERNAL FINANCING IN THE NEXT SIX MONTHS

(SCALE 1-4: SLIGHT, MODERATE, HIGH, EXTREMELY HIGH)

0.01.02.03.04.0

RESPONDENTS INDICATING HIGH OR EXTREMELY HIGH EXPECTED DEMAND FOR NEW EXTERNAL FINANCING IN THE NEXT SIX MONTHS

100.0%

V. EXPECTED ACCESS RATES

DO YOU EXPECT IT WOULD BE EASY OR DIFFICULT TO RAISE NEW FINANCING IN THE NEXT SIX MONTHS?

Equity financing Debt financing

Difficult Neither difficult nor easy

Easy0%

Difficu

Neither

difficu

lt nor e

asy Easy

0%20%40%60%80%

LIKELY SOURCES OF FINANCING

ds and fa

Grants

(SBIR, S

TTR, e

Crowd funding (

equity

Trade c

Credit c

ard - p

- pers

Credit c

ard - b

iz.Lea

Bank l

oan - b

CDFI/ Cred

it union

Asset b

ased le

Biz onlin

e mark

lace l

rep. co

Merch. ca

sh advan

Angel ca

Vent. c

Private

equity

Mezz. le

0%20%40%60%80%

MAIN PURPOSE FOR RAISING EXPECTED FINANCING

0%20%40%60%80%

LEVEL OF CONFIDENCE FOR SUCCESSFUL FINANCING (SCALE 0-4: NONE; SOME; MODERATELY; VERY; COMPLETELY)

ds and fa

Crowd funding (

equity

Credit c

ard - p

Credit c

ard - b

Bank l

oan - b

Asset b

ased le

rep. co

Merch. ca

sh advan

Vent. c

Mezz. le

nder0.01.02.03.04.0

REASONS FOR NOT PLANNING ON RAISING FINANCING

Enough

cash flow

Sufficie

nt finan

cing i

n place

Weak e

conomy

Business

would be r

ejecte

Not enough

Lack o

ertise

Waiting f

or chea

per finan

of contro

l / flexi

bility

operation / l

iquidateOther

0%20%40%60%80%

VI. HIRING / GROWTH OUTLOOKS AND FINANCING FAILURE IMPACTS

NUMBER OF EMPLOYEES PLANNED TO BE HIRED IN THE NEXT SIX MONTHS

0 1-2 3-5 6-10 11-15 16-20 21-30 31-40 41-50 51-75 76 - 100

101 - 200

REASONS PREVENTING RESPONDENTS FROM HIRING

0%20%40%60%80%

WILL EMPLOYEES PLANNED TO BE HIRED BE FULL-TIME OR PART-TIME

Mostly full-time employees Mostly part-time employees A combination of full-time and part-time

0%10%20%30%40%50%60%70%80%

DO RESPONDENTS EXPECT TO DECREASE THE NUMBER OF EMPLOYEES IN THE NEXT SIX MONTHS

No 1-2 3-5 6-100%

10%20%30%40%50%60%70%80%90%

HOW MANY FULL-TIME EMPLOYEES RESPONDENTS REPLACED WITH (OR CONVERTED TO) PART-TIME EMPLOYEES IN THE LAST SIX MONTHS

0 1-2 3-5 6-100%

10%20%30%40%50%60%70%80%90%

HOW MANY FULL-TIME EMPLOYEES RESPONDENTS ARE PLANNING TO REPLACE WITH (OR CONVERT TO) PART-TIME EMPLOYEES IN THE NEXT SIX

MONTHS

0 1-2 3-5 6-10 21-300%

10%20%30%40%50%60%70%80%90%

HOW MANY PART-TIME EMPLOYEES RESPONDENTS REPLACED WITH (OR CONVERTED TO) FULL-TIME EMPLOYEES IN THE LAST SIX MONTHS

0 1-2 3-5 6-100%

10%20%30%40%50%60%70%80%90%

HOW MANY PART-TIME EMPLOYEES RESPONDENTS ARE PLANNING TO REPLACE WITH (OR CONVERT TO) FULL-TIME EMPLOYEES IN THE NEXT SIX

MONTHS

0 1-2 3-5 6-100%

10%20%30%40%50%60%70%80%

HOW RESPONDENTS EXPECT THEIR BUSINESS TO PERFORM IN 2016 COMPARED TO 2015

Substantially better Somewhat better Exactly the same Somewhat worse Substantially worse0%

HOW CONFIDENT ARE RESPONDENTS THAT THEIR BUSINESS WILL GROW IN 2016

Extremely confident Somewhat confident Somewhat unconfident Extremely unconfident0%

THE MOST SIGINIFICANT CHALLENGE FOR BUSINESS IN 2016

Genera

ting new

mer lea

Getting c

l to gr

Hiring q

uality

employe

Retaining e

xisting c

ustomers

Upgrading t

echnology

structu

Purchasi

ng or le

asing e

quipment

Paying b

illsOther

None0%

20%40%60%80%

HOW THE FEDERAL INTEREST RATE HIKE COULD IMPACT RESPONDENTS BUSINESSES

IMPACTS OF UNSUCCESSFUL FINANCING EVENT IN THE NEXT SIX MONTHS FOR THOSE PLANNING TO RAISE CAPITAL (MULTIPLE SELECTIONS)

PERCENTAGE OF RESPONDENTS HEDGED THE FOLLOWING AREAS IN THE LAST 12 MONTHS

Currency risk Commodity risk Interest risk0%

PERCENTAGE OF BUSINESSES THAT HAVE A FINANCIAL RISK MANAGEMENT POLICY

Yes No Unsure0%

THE CLOSEST PERCENTAGE OF RESPONDENTS EXPOSURE THAT THEY TYPICALLY HEDGE

25% 50% 75% 100%0%

ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS: WHOLE SAMPLE

41-50%

31-40%

21-30%

16-20%

11-15%6-10%

4-5%2-3%

d flat2-3%

4-5%6-10%

11-15%

16-20%

21-30%

31-40%

41-50%> 5

Averag

5%2% 1%

3% 3%2%

3% 2% 3%

5% 5% 4%3% 3%

Decline Increase

ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS : REVENUES UNDER $5M

41-50%

31-40%

21-30%

16-20%

11-15%6-10%

4-5%2-3%

d flat2-3%

4-5%6-10%

11-15%

16-20%

21-30%

31-40%

41-50%> 5

Averag

2% 2%3% 3%

5% 5% 4%3% 3%

Decline Increase

ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS : REVENUES FROM $5M TO $100M

21-30%

16-20%

11-15%6-10%

4-5%2-3%

d flat2-3%

4-5%6-10%

11-15%

16-20%

21-30%

31-40%

41-50%> 5

Average

0%2%4%6%8%

10%12%14%16%18%20%

2% 3% 4%2%

6%8% 7%

Decline Increase

ANNUAL REVENUE CHANGE EXPECTATIONS (NEXT 12 MONTHS): WHOLE SAMPLE

41-50%

21-30%

16-20%

11-15%6-10%

4-5%2-3%

d flat2-3%

4-5%6-10%

11-15%

16-20%

21-30%

31-40%

41-50%> 5

Average

0%2%4%6%8%

10%12%14%16%

2%1% 1% 1% 2% 2% 1% 1%

15%13%

11%12%

7% 7% 7%

10%12%

Decline Increase

ANNUAL REVENUE CHANGE EXPECTATIONS (NEXT 12 MONTHS): REVENUES UNDER $5M

41-50%

21-30%

16-20%

11-15%6-10%

4-5%2-3%

d flat2-3%

4-5%6-10%

11-15%

16-20%

21-30%

31-40%

41-50%> 5

Average

0%2%4%6%8%

10%12%14%16%

2%1% 1% 1% 2% 2% 1% 1%

14%13%

12% 12%

Decline Increase

ANNUAL REVENUE CHANGE EXPECTATIONS (NEXT 12 MONTHS): REVENUES $5M TO $100M

21-30%

16-20%6-10%

d flat2-3%

4-5%6-10%

11-15%

16-20%

21-30%

31-40%

41-50%> 5

Average

0%2%4%6%8%

10%12%14%16%18%

1% 1%2%

11% 12%

Decline Increase

VII. ABOUT THE RESPONDENTS

DETAILS ABOUT THE RESPONDENTSGEOGRAPHIC LOCATION

DETAILS ABOUT THE RESPONDENTS INDUSTRY

13%9%8%7%

4%3% 3%2% 1% 2% Services

ConstructionRetail tradeFinance & real estateManufacturingInformation technology or servicesTransportation and warehousingHealth careWholesale tradeEducational servicesArts, entertainment or recreationForestry, fishing, hunting or agricultureUtilities & miningUnclassified establishments

DETAILS ABOUT THE RESPONDENTS ANNUAL REVENUES

7% 5%3%

10%15%

11%10%

9% 8%4% 3%1%

1% 3% $0 or pre-revenue stage$1 - $5,000$5,001 - $10,000$10,001 - $25,000$25,001 - $50,000$50,001 - $100,000$100,001 - $250,000$250,001 - $500,000$500,001 - $1,000,000$1,000,001 - $2,000,000$2,000,001 - $5,000,000$5,000,001 - $10,000,000$10,000,001 - $25,000,000$25,000,001 - $50,000,000$50,000,001 - $100,000,000$100,000,001 - $500,000,000

DETAILS ABOUT THE RESPONDENTS ANNUAL INCOME

9%14%17%

7%5% 3%

2%1% 1% 1% Negative (net loss)$1 - $5,000$5,001 - $10,000$10,001 -$25,000$25,001 - $50,000$50,001 - $100,000$100,001 - $250,000$250,001 - $500,000$500,001 - $1,000,000$1,000,001 - $2,000,000$2,000,001 - $5,000,000$5,000,001 - $50,000,000$50,000,001 - $100,000,000Greater than $100,000,000

DETAILS ABOUT THE RESPONDENTS TOTAL BUSINESS ASSETS

3%10% 8%

10%12%11%9%

8%6% 6%

3%2% 5%

$0 $1 - $5,000

$5,001 - $10,000 $10,001 - $25,000

$25,001 - $50,000 $50,001 - $100,000

$100,001 - $250,000 $250,001 - $500,000

$500,001 - $1,000,000 $1,000,001 - $2,000,000

$2,000,001 - $5,000,000 $5,000,001 - $10,000,000

$10,000,001 - $25,000,000 Greater than $25,000,000

DETAILS ABOUT THE RESPONDENTS FIRM AGE

9% 8%7%

18%20%

Less than 1 year

At least 1 but less than 2

20 or more

DETAILS ABOUT THE RESPONDENTS NUMBER OF FULL-TIME EMPLOYEES

46%19%

10%4% 13%

0 1-2 3-5 6-10

11-15 More than 15

DETAILS ABOUT THE RESPONDENTS NUMBER OF PART-TIME EMPLOYEES

13%5%2%

0 1-2 3-5 6-10

11-15 More than 15

DETAILS ABOUT THE RESPONDENTS PRIMARY BUSINESS ACTIVITY

Sales Service

DETAILS ABOUT THE RESPONDENTS PERCENTAGE OF CERTIFIED WOMEN-OWNED BUSINESSES

19% 20%10%

About Pepperdine Private Capital Markets ProjectThe Pepperdine Private Capital Markets Project at the Graziadio School of Business and Management is the first simultaneous, comprehensive, and on-going investigation of the major private capital market segments. The research seeks to understand the true cost of private capital across market types and the investment expectations of privately-held business owners; providing lenders, investors and the businesses that depend on them with critical data to make optimal investment and financing decisions, and better determine where the opportunities to create lasting economic value may be realized. Download reports and find more information at http://bschool.pepperdine.edu/privatecapital. About Pepperdine University’s Graziadio School of Business and Management A leader in cultivating entrepreneurship and digital innovation, The Graziadio School of Business and Management of Pepperdine University focuses on the real-world application of MBA-level business concepts. The Graziadio School provides student-focused, globally-oriented education through part-time, full-time, and Executive MBA programs at our eight campuses, as well as through online and hybrid formats. In addition, The Graziadio School offers a variety of Master of Science programs, a Bachelor of Science in Management degree completion program, Presidential and Key Executives MBA and executive education certificate programs. Follow the Graziadio School on Facebook, on Twitter at @GraziadioSchool and Linkedin.

Thank YouCraig Everett, Ph.D.

Director,Pepperdine Private Capital Markets Projecthttp://bschool.pepperdine.edu/privatecapital

craig.everett@pepperdine.edu310.506.8543

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