Pepperdine Private Capital Markets Report Q2 2016

Second Quarter 2016
Craig Everett, Ph.D.

Directors, Pepperdine Private Capital Markets Project
05.02.16
bschool.pepperdine.edu/accesscapital
PUBLISHED BY
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, republicaIon or redistribuIon of PCA Index content, including but not limited to caching, framing or similar means, is expressly
prohibited without the prior wriKen consent of Pepperdine University. Pepperdine University shall not be liable for any errors, omissions or
delays in PCA Index content, or for any acIons taken in reliance thereon.
ACKNOWLEDGEMENTS
Id 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 Perry
Director, Marketing and Communications
Irina Shaykhutdinova
Research Associate
This research was made possible with the support of Dun & Bradstreet.
DUN & BRADSTREET

Jeffrey Stibel
Vice Chairman
Judy Hackett,
Chief Marketing Officer
Aaron Stibel
Chief Technology Officer
Heather Herndon
Director, Marketing and Communications
Lauren Simpson
Marketing and Communications Manager
Bernice Brennan
Manager, Creative Services & Marketing Communications
Ben Pollock
Marketing Manager
TABLE OF CONTENTS
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....39
V.
Expected capital access (success) rates...44
VI.
Hiring/growth outlooks and financing failure impacts50
VII. About the respondents..73
I. ABOUT THE PRIVATE CAPITAL ACCESS (PCA) INDEX
The Pepperdine Private Capital Access Index (PCA) is a quarterly indicator produced by Pepperdine University Graziadio School
of Business and Management 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.
ABOUT THE Q2 2016 PRIVATE CAPITAL ACCESS (PCA) INDEX SURVEY
40 questions
Invited to participate
Distributed to sample from Dun & Bradstreets business database
1,097 completed responses
Where relevant, responses are segmented by revenues sizes (<$5 million; $5 million to $100 million)
Responses collected from April 7 April 29, 2016
PRIVATE CAPITAL ACCESS (PCA) AND PRIVATE CAPITAL DEMAND (PCD) INDEX
RESULTS - WHOLE SAMPLE
Total Market
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
2016-Q2
Change
Pct. Change
8
PCA Index
27.8
27.0
27.3
25.6
26.8
27.5
27.8
28.3
28.9
28.7
29.6
29.6
30.0
30.8
31.2
32.0
30.7
-1.3
-4.0%
PCD Index
37.0
36.5
35.1
32.7
33.4
31.7
32.8
32.3
31.1
29.9
31.1
32.6
35.0
35.3
33.6
36.1
30.4
-5.7
-15.9%
PRIVATE CAPITAL ACCESS (PCA) AND PRIVATE CAPITAL DEMAND (PCD) INDEX
RESULTS WHOLE SAMPLE
100
90
80
70
60
50
40
30
20
10
0
2012- 2012- 2012- 2013- 2013- 2013- 2013- 2014- 2014- 2014- 2014- 2015- 2015- 2015- 2015- 2016- 2016-
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
PCA Index 27.8
27.0
27.3
25.6
26.8
27.5
27.8
28.3
28.9
28.7
29.6
29.6
30.0
30.8
31.2
32.0
30.7
PCD Index 37.0
36.5
35.1
32.7
33.4
31.7
32.8
32.3
31.1
29.9
31.1
32.6
35.0
35.3
33.6
36.1
30.4
SMALL BUSINESS PCA AND PCD INDEX RESULTS

(< $5M IN REVENUES)
Total Market
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
2016-Q2
Change
Pct. Change
10
PCA Index
26.6
26.0
26.3
24.6
26.3
26.8
26.6
27.1
27.7
27.5
28.5
28.9
29.2
30.3
30.3
31.1
30.1
-1.0
-3.3%
PCD Index
38.8
38.0
36.5
33.2
34.3
32.3
33.9
33.4
32.1
30.8
31.9
33.2
36.2
36.8
34.9
37.6
31.5
-6.1
-16.1%
SMALL BUSINESS PCA AND PCD INDEX RESULTS

(< $5M IN REVENUES)
100
90
80
70
60
50
40
30
20
10
0
11
2012- 2012- 2012- 2013- 2013- 2013- 2013- 2014- 2014- 2014- 2014- 2015- 2015- 2015- 2015- 2016- 2016-
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
PCA Index 26.6
26.0
26.3
24.6
26.3
26.8
26.6
27.1
27.7
27.5
28.5
28.9
29.2
30.3
30.3
31.1
30.1
PCD Index 38.8
38.0
36.5
33.2
34.3
32.3
33.9
33.4
32.1
30.8
31.9
33.2
36.2
36.8
34.9
37.6
31.5
LOWER MIDDLE MARKET PCA AND PCD INDEX RESULTS

($5M $100M IN REVENUES)
Total Market
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
2016-Q2
Change
Pct. Change
12
PCA Index
34.7
33.5
32.7
31.9
34.3
34.7
33.7
36.7
37.0
35.5
37.5
37.6
37.7
36.8
38.8
39.7
35.5
-4.2
-10.6%
PCD Index
32.3
33.1
31.5
30.6
28.7
27.6
26.3
24.8
24.9
25.3
25.5
24.6
24.3
24.7
23.8
23.2
20.5
-2.7
-11.7%
LOWER MIDDLE MARKET PCA AND PCD INDEX RESULTS

($5M $100M IN REVENUES)
100
90
80
70
60
50
40
30
20
10
0
13
2012- 2012- 2012- 2013- 2013- 2013- 2013- 2014- 2014- 2014- 2014- 2015- 2015- 2015- 2015- 2016- 2016-
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
PCA Index 34.7
33.5
32.7
31.9
34.3
34.7
33.7
36.7
37.0
35.5
37.5
37.6
37.7
36.8
38.8
39.7
35.5
PCD Index 32.3
33.1
31.5
30.6
28.7
27.6
26.3
24.8
24.9
25.3
25.5
24.6
24.3
24.7
23.8
23.2
20.5
ANNUAL REVENUE CHANGE EXPECTATIONS

BY REVENUE SIZE
15%
10%
5%
0%
Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2,
2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016
Whole sample
7.3% 5.8% 6.4% 6.2% 5.4% 7.0% 8.2% 8.4% 7.8% 7.0% 9.7% 10.4% 11.2% 9.9% 11.5% 8.6%
< $5 million
7.1% 5.7% 5.9% 6.3% 5.2% 7.0% 8.3% 8.8% 8.1% 6.7% 9.9% 10.5% 11.9% 10.2% 12.0% 8.8%
$5 -$100 million 7.8% 6.7% 7.1% 5.3% 6.5% 8.1% 7.3% 6.6% 6.7% 9.3% 9.0% 9.7% 7.5% 8.4% 8.6% 7.0%
II. DEMAND FOR EXTERNAL FINANCING
15
DEMAND FOR FINANCING BY PURPOSE

(% WITH ANY NEED REPORTED)
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Whole sample
16
Planned growth Working capital

or expansion,
uctuaVons
including
acquisiVons (not
yet realized)
54.6%
53.5%
Growth due to
increased
demand
(already
realized)
48.3%
Finance
worsening
operaVng
condiVons
Renance
exisVng loans or
equity
Withdraw
wealth for
owners
28.9%
26.6%
20.1%
< $5 million
56.4%
55.7%
50.4%
30.3%
27.9%
20.9%
$5 -$100 million
38.3%
36.1%
30.5%
16.0%
18.1%
15.1%
STRENGTH OF DEMAND FOR FINANCING

(AMONG THOSE INDICATING DEMAND)
Scale 1-4: slight, moderate, high, extremely high need
4.0
3.0
2.0
1.0
0.0
Planned growth
or expansion,
including
acquisiVons (not
yet realized)
2.4
Renance
exisVng loans or
equity
Working capital
uctuaVons
2.3
2.1
2.1
2.1
2.0
< $5 million
2.4
2.2
2.1
2.0
2.1
2.3
$5 -$100 million
2.2
1.8
1.8
1.9
1.4
2.3
Whole sample
17
Growth due to Withdraw wealth

increased
for owners
demand (already
realized)
Finance
worsening
operaVng
condiVons
RESPONDENTS INDICATING HIGH AND EXTREMELY HIGH DEMAND FOR FINANCING

(AMONG THOSE INDICATING DEMAND)

100%
80%
60%
40%
20%
0%
Planned growth
or expansion,
including
acquisiVons (not
yet realized)
42.4%
Working capital
uctuaVons
Growth due to
increased
demand (already
realized)
Finance
worsening
operaVng
condiVons
Renance
exisVng loans or
equity
Withdraw
wealth for
owners
39.7%
33.5%
31.1%
27.5%
26.2%
< $5 million
42.9%
32.0%
26.0%
39.5%
35.0%
28.5%
$5 -$100 million
38.7%
20.0%
25.0%
38.5%
16.7%
9.1%
Whole sample
18
HOW MUCH FINANCING RESPONDENTS ARE SEEKING

100%
80%
60%
40%
20%
0%
Less than
$5,000
$5,000 -
$9,999
$10,000 -
24,999
$25,000 -
$49,999
$50,000 -
$99,999
Whole sample
3%
5%
10%
16%
20%
< $5 million
3%
5%
11%
17%
19%
23%
7%
6%
3%
3%
3%
$5 -$100 million
0%
0%
7%
7%
7%
14%
7%
43%
7%
7%
0%
19
$100,000 - $500,000 - $1 million - $2 million - $5 million - $10 million

$499,999 $999,999
$1.999
$4.999
$9.999
- $24.999
million
million
million
million
22%
7%
8%
3%
4%
3%
PERCENTAGE INDICATING YES TO IS THE CURRENT BUSINESS FINANCING ENVIRONMENT

RESTRICTING
100%
80%
50%
52%
43%
33%
60%
45%
21%
40%
20%
0%
Growth opportuniVes for your business?
Whole sample
20
Your ability to hire new employees?
< $5 million
$5 -$100 million
HOW DID RESPONDENTS BUSINESS OPERATE IN THE LAST QUARTER
100%
80%
60%
40%
20%
0%
Whole sample
prot
55%
break even
23%
loss
22%
< $5 million
53%
24%
23%
$5 million -$100 million
75%
13%
13%
21
RESPONDENTS PRIMARY SOURCE OF CREDIT IN THE LAST QUARTER

100%
80%
60%
40%
20%
0%
Whole sample
17%
16%
4%
1%
3%
Trade
credit
provider
5%
< $5 million
16%
14%
4%
1%
3%
5%
6%
9%
42%
33%
29%
0%
1%
1%
1%
1%
10%
23%
22
Large bank Community

bank
Credit
union
CDFI
Online
lender
Friends/
family
Other
No credit
6%
9%
40%
WHY WAS THAT THE PRIMARY SOURCE OF CREDIT IN LAST QUARTER

100%
80%
60%
40%
20%
0%
23
I was able to
qualify for it
It had a
I intended to
reasonable use it only as
interest rate
a reserve
The
payments
were
aordable
Whole sample
46%
39%
27%
24%
I did not
qualify for
other
sources of
nancing
16%
Other
< $5 million
45%
36%
27%
24%
18%
15%
61%
58%
31%
21%
2%
13%
15%
WHAT WAS RESPONDENTS BUSINESS MOST DIFFICULT CHALLENGE IN THE

LAST QUARTER
100%
80%
60%
40%
20%
0%
Uneven
cash ow
Diculty
apracVng
customers
Increased
costs of
running
business
Taxes
Whole sample
17%
12%
10%
10%
< $5 million
17%
13%
10%
10%
10%
8%
7%
11%
6%
8%
9%
0%
18%
23%
24
Lack of
Diculty
Complying Accounts
credit
hiring and/
with
receivable
availability or retaining government collecVon
qualied regulaVons,
period
sta
including
the
Aordable
Care Act
9%
9%
8%
7%
Other
None
9%
10%
7%
9%
9%
7%
6%
13%
PERCENTAGE OF BUSINESSES THAT HAVE FINANCING COMING FROM

OUTSIDE SOURCES
100%
55%
80%
60%
37%
35%
40%
20%
0%
Whole sample
25
< $5 million
$5 -$100 million
PERCENTAGE OF RESPONDENTS WHO ATTEMPTED

TO RAISE OUTSIDE FINANCING
IN THE LAST THREE MONTHS
100%
80%
60%
25%
27%
40%
20%
20%
0%
Whole sample
26
< $5 million
$5 -$100 million
III. ACCESSIBILITY/SUCCESS RATE
27
IS IT DIFFICULT OR EASY TO RAISE

NEW EXTERNAL FINANCING?
Debt nancing
Equity nancing
100%
80%
60%
40%
20%
0%
28
Dicult
100%
80%
60%
40%
20%
0%
Easy
20%
Whole sample
Dicult
Easy
57%
Neither
dicult
nor easy
19%
Whole sample
59%
Neither
dicult
nor easy
21%
< $5 million
61%
21%
19%
< $5 million
59%
19%
22%
$5 -$100 million
40%
22%
38%
$5 -$100 million
42%
23%
35%
24%
FINANCING SUCCESS RATES BY TYPE AND BUSINESS SIZE FOR PRIOR THREE
MONTHS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Friends
and family
Grants
(SBIR,
STTR, etc.)
Crowd
funding
(equity/
debt)
Trade
credit
Credit card
- pers.
Loan -
pers.
Credit card
- biz.
Lease
Bank loan -
biz.
CDFI/
Credit
union
Asset
based
lender
Bussines
Tax
online
preparaVo
market n company
place
lender
Factor
Merchant
cash
advance
Angel
capital
Vent.
capital
Private
equity
group
Mezz.
lender
Hedge
fund
Whole sample
66%
31%
16%
56%
76%
47%
69%
36%
43%
10%
25%
21%
8%
25%
42%
14%
7%
13%
0%
4%
< $5 million
68%
32%
17%
57%
77%
46%
70%
35%
38%
7%
18%
20%
9%
28%
41%
15%
7%
11%
0%
4%
$5 -$100 million
60%
0%
0%
60%
67%
63%
57%
50%
70%
50%
71%
33%
0%
0%
50%
0%
0%
50%
0%
0%
29
BANK LOANS: FINANCING SUCCESS RATES BY BUSINESS SIZE FOR PRIOR

THREE MONTHS
100%
80%
60%
40%
20%
0%
Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2,
2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016
Whole Sample 44.9% 43.8% 42.0% 39.5% 33.3% 43.9% 42.2% 44.2% 53.5% 54.4% 48.6% 40.9% 36.9% 36.8% 39.1% 38.1% 42.7%
< $5 million
36.2% 34.6% 36.3% 33.5% 26.6% 37.4% 34.4% 39.0% 43.7% 46.1% 43.4% 35.2% 31.5% 30.1% 34.7% 29.8% 38.5%
$5 -$100 million 75.9% 77.4% 70.0% 73.7% 78.6% 81.5% 74.6% 81.1% 89.7% 90.4% 75.6% 84.8% 76.3% 88.2% 73.2% 90.2% 70.0%
30
ASSET BASED LOANS: FINANCING SUCCESS RATES BY BUSINESS SIZE FOR

PRIOR THREE MONTHS
100%
80%
60%
40%
20%
0%
Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2,
2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016
Whole Sample 20.1% 28.2% 31.8% 28.7% 19.2% 26.5% 24.8% 28.1% 29.7% 33.9% 33.3% 19.4% 26.6% 21.6% 22.2% 20.9% 24.6%
< $5 million
11.9% 20.1% 23.0% 24.8% 18.4% 22.5% 21.0% 22.6% 23.8% 26.5% 29.3% 16.2% 23.6% 18.5% 20.3% 17.5% 18.4%
$5 -$100 million 53.4% 60.0% 69.8% 61.9% 33.3% 66.7% 50.0% 77.8% 75.0% 65.0% 62.5% 54.5% 60.0% 71.4% 50.0% 63.6% 71.4%
31
PERCENTAGE OF RESPONDENTS THAT HAVE CONSIDERED SBA LOAN FOR

THEIR BUSINESSES
100%
80%
60%
39%
40%
26%
40%
20%
0%
Whole sample
32
< $5 million
PERCENTAGE OF RESPONDENTS THAT HAVE SUCESSFULLY SECURED SBA

BACKED LOAN IN THE LAST THREE MONTHS
100%
80%
60%
40%
20%
1%
1%
2%
0%
Whole sample
33
< $5 million
PERCENTAGE OF THOSE WHO ATTEMPTED TO RAISE FINANCING BY TYPE OF

FINANCING FOR PRIOR THREE MONTHS
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Friends
and
family
Grants
(SBIR,
STTR,
etc.)
Crowd
funding
(equity/
debt)
Trade
credit
Credit
card -
pers.
Loan -
pers.
Credit
card -
biz.
Lease
Bank
loan - biz.
CDFI/
Credit
union
Asset
based
lender
Biz online Tax prep.

market company
place
lender
Factor
Merch.
cash
advance
Angel
capital
Vent.
capital
Private
equity
group
Mezz.
lender
Hedge
fund
Whole sample
36.5%
30.5%
17.7%
30.5%
48.9%
39.8%
54.5%
19.2%
46.2%
23.3%
25.2%
3.8%
0.8%
13.9%
13.2%
15.8%
15.0%
14.7%
10.2%
10.9%
< $5 million
37.0%
31.7%
18.5%
30.5%
51.0%
39.1%
55.6%
18.9%
44.9%
23.0%
24.3%
3.7%
0.8%
14.0%
12.8%
16.5%
15.6%
14.4%
10.3%
11.1%
$5 -$100 million
33.3%
13.3%
6.7%
33.3%
20.0%
53.3%
46.7%
26.7%
73.3%
26.7%
46.7%
6.7%
0.0%
13.3%
13.3%
6.7%
6.7%
13.3%
6.7%
6.7%
34
MAIN PURPOSE FOR RAISING OR ATTEMPTING

TO RAISE FINANCING
100%
80%
60%
40%
20%
0%
Whole sample
Growth or
Working
Replacing Renancing
Finance
expansion
capital
equipment exisVng loans worsening
(incl. acquis.) uctuaVons or faciliVes
or equity
operaVons
unrelated to
condiVons
growth or
expansion
43%
30%
8%
6%
3%
Withdraw
wealth for
owners
Other
1%
9%
< $5 million
44%
30%
7%
5%
3%
1%
9%
$5 -$100 million
39%
33%
11%
6%
0%
0%
11%
35
REASONS FOR BUSINESSES NOT ATTEMPTING TO RAISE EXTERNAL FINANCING

(MULTIPLE SELECTIONS)
100%
80%
60%
40%
20%
0%
36
Enough Sucient Business Lack of

Weak
Not
cash ow nancing would be experVse economy enough
in place rejected
Vme
WaiVng Loss of
Cease
for
control / operaVon
cheaper exibility
/
nancing
liquidate
7%
3%
2%
Other
Whole sample
52%
26%
14%
12%
11%
8%
< $5 million
49%
24%
16%
13%
12%
9%
7%
3%
2%
9%
$5 -$100 million
70%
46%
1%
3%
10%
4%
0%
1%
0%
4%
9%
PERCENTAGE OF OWNERS WHO TRANSFERRED PERSONAL ASSETS TO

BUSINESS OVER PRIOR THREE MONTHS
83%
100%
64% 62%
80%
60%
32%
40%
34%
13%
20%
4%
4%
0%
Yes
No
Whole sample
37
< $5 million
Unsure
$5 -$100 million
3%
TYPES OF PERSONAL ASSETS TRANSFERRED TO BUSINESS DURING PRIOR

THREE MONTHS
(MULTIPLE SELECTIONS)
100%
80%
60%
40%
20%
0%
Whole sample
Personal
Personal credit Personal loan Cash from the
savings /
card purchases
sale of
investments
personal
assets
71%
45%
18%
18%
Home equity
loan
Other
6%
7%
< $5 million
72%
45%
17%
19%
6%
6%
$5 -$100 million
50%
25%
33%
8%
0%
17%
38
IV. EXPECTED DEMAND FOR EXTERNAL FINANCING
39
PERCENTAGE OF BUSINESSES PLANNING TO RAISE FINANCING IN THE NEXT

SIX MONTHS
100%
71%
80%
60%
40%
53%
27%
28%
52%
19%
17%
20%
20%
0%
Yes
Whole sample
40
No
< $5 million
Unsure
12%
PERCENTAGE OF RESPONDENTS INDICATING DEMAND FOR NEW FINANCING IN

THE NEXT SIX MONTHS
100%
80%
60%
40%
20%
0%
Whole sample
41
Planned
future
growth or
expansion
55%
Expected
Growth due
working
to expected
capital
increased
uctuaVons
demand
52%
50%
Expected
worsening
operaVng
condiVons
26%
Renance
exisVng
loans or
equity
26%
Withdraw
wealth for
owners
18%
< $5 million
56%
55%
52%
27%
27%
19%
41%
33%
33%
15%
19%
12%
STRENGTH OF EXPECTED DEMAND FOR NEW EXTERNAL FINANCING IN THE

NEXT SIX MONTHS
(SCALE 1-4: SLIGHT, MODERATE, HIGH, EXTREMELY HIGH)
4.0
3.0
2.0
1.0
0.0
Whole sample
42
Planned
future
growth or
expansion
2.4
Renance
Growth due
exisVng loans to expected
or equity
increased
demand
2.3
2.2
Expected
working
capital
uctuaVons
2.2
Withdraw
wealth for
owners
2.0
Expected
worsening
operaVng
condiVons
2.0
< $5 million
2.4
2.2
2.2
2.1
2.1
2.3
2.1
1.9
1.9
1.5
1.3
1.9
RESPONDENTS INDICATING HIGH OR EXTREMELY HIGH EXPECTED DEMAND

FOR NEW EXTERNAL FINANCING IN THE NEXT SIX MONTHS
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Planned
future
growth or
expansion
43.9%
Expected
working
capital
uctuaVons
38.6%
Growth due
to expected
increased
demand
35.5%
Expected
worsening
operaVng
condiVons
35.3%
Renance
exisVng
loans or
equity
29.7%
Withdraw
wealth for
owners
< $5 million
45.1%
30.2%
36.0%
39.4%
36.3%
31.0%
36.4%
9.1%
32.0%
35.7%
25.9%
12.5%
Whole sample
29.0%
V. EXPECTED ACCESS RATES
44
DO YOU EXPECT IT WOULD BE EASY OR DIFFICULT TO RAISE NEW FINANCING IN THE NEXT SIX
MONTHS?

Debt nancing
Equity nancing
100%
80%
60%
40%
20%
0%
45
Dicult
100%
80%
60%
40%
20%
0%
Easy
27%
Whole sample
Dicult
Easy
53%
Neither
dicult
nor easy
17%
Whole sample
56%
Neither
dicult
nor easy
17%
< $5 million
58%
17%
26%
< $5 million
55%
17%
28%
$5 -$100 million
41%
14%
45%
$5 -$100 million
33%
15%
51%
30%
LIKELY SOURCES OF FINANCING

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Whole sample
46
Friends Grants Crowd Trade

and
(SBIR, funding credit
family STTR, (equity/
etc.)
debt)
29%
38%
19%
22%
Credit
card -
pers.
Loan -
pers.
Credit
card -
biz.
Lease
Bank
loan -
biz.
CDFI/
Credit
union
24%
31%
39%
22%
53%
36%
Asset
Biz
Tax
based online prep.
lender market comp.
place
lender
29%
24%
4%
Factor Merch. Angel

cash capital
advance
13%
8%
26%
Vent. Private Mezz.

capital equity lender
group
24%
28%
11%
Hedge
fund
7%
MAIN PURPOSE FOR RAISING EXPECTED FINANCING

100%
80%
60%
40%
20%
0%
Whole sample
47
Growth or
Working Renancing Replacing
Finance
expansion
capital
exisVng
equipment worsening
(incl.
uctuaVons loans or
or faciliVes operaVons
acquisiVon)
equity
unrelated to condiVons
growth or
expansion
57%
21%
8%
6%
1%
Withdraw
wealth for
owners
Other
1%
5%
< $5 million
57%
21%
8%
5%
1%
2%
5%
$5 -$100 million
73%
20%
0%
0%
0%
0%
7%
LEVEL OF CONFIDENCE FOR SUCCESSFUL FINANCING

(SCALE 0-4: NONE; SOME; MODERATELY; VERY; COMPLETELY)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Friends Grants Crowd Trade

and
(SBIR, funding credit
family STTR, (equity/
etc.)
debt)
Credit
card -
pers.
Loan -
pers.
Credit
card -
biz.
Lease
Bank
loan -
biz.
CDFI/
Credit
union
Asset
Biz
Tax
based online prep.
lender market comp.
place
lender
Factor Merch. Angel Vent. Private Mezz.

cash capital capital equity lender
group
advanc
e
Hedge
fund
Whole sample
2.2
1.6
1.4
2.0
1.9
1.6
2.1
2.1
1.6
1.5
1.4
1.2
0.6
0.6
1.9
1.8
1.7
1.5
1.4
0.7
< $5 million
2.2
1.6
1.3
2.0
1.8
1.6
2.1
2.0
1.5
1.5
1.4
1.2
0.6
0.6
1.8
1.8
1.7
1.5
1.5
0.7
$5 -$100 million
0.0
1.0
2.0
2.3
2.0
1.3
2.0
4.0
2.2
0.3
0.5
0.0
0.0
2.5
0.0
0.0
1.0
1.0
0.0
0.0
48
REASONS FOR NOT PLANNING ON RAISING FINANCING

100%
80%
60%
40%
20%
0%
49
Enough Sucient Weak

Business Lack of
cash ow nancing economy would be experVse
in place
rejected
Not
Loss of
WaiVng
Cease
enough control /
for
operaVon
Vme
exibility cheaper
/
nancing liquidate
5%
3%
3%
2%
Other
Whole sample
68%
34%
11%
7%
5%
< $5 million
65%
32%
11%
8%
5%
6%
3%
3%
2%
5%
$5 -$100 million
78%
49%
14%
2%
3%
2%
0%
2%
0%
0%
4%
VI. HIRING / GROWTH OUTLOOKS AND FINANCING FAILURE IMPACTS
50
NUMBER OF EMPLOYEES PLANNED TO BE HIRED IN THE NEXT SIX MONTHS

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Whole sample
0
42%
1-2
35%
3-5
14%
6-10
5%
11-15
2%
16-20
1%
21-30
0%
41-50
1%
76 - 100
0%
< $5 million
43%
35%
13%
4%
2%
1%
0%
0%
0%
26%
25%
23%
7%
8%
5%
1%
3%
1%
51
REASONS PREVENTING RESPONDENTS FROM HIRING

100%
80%
60%
40%
20%
0%
Economic
uncertainty/
condence
(domesVc)
27%
Government
regulaVons
and taxes
Access to
capital
Ability to nd
qualied
employees
15%
8%
< $5 million
27%
14%
45%
15%
Whole sample
52
InternaVonal
economic
uncertainty
Other
8%
Consumer/
business
demand
(spending)
7%
1%
33%
8%
8%
8%
1%
34%
0%
5%
10%
0%
25%
WILL EMPLOYEES PLANNED TO BE HIRED BE FULL-TIME OR PART-TIME

70%
60%
50%
40%
30%
20%
10%
0%
Whole sample
42%
Mostly part-Vme
employees
32%
< $5 million
40%
34%
26%
$5 -$100 million
65%
13%
22%
53
Mostly full-Vme employees
A combinaVon of full-Vme
and part-Vme
25%
DO RESPONDENTS EXPECT TO DECREASE THE NUMBER OF EMPLOYEES IN

THE NEXT SIX MONTHS
100%
80%
60%
40%
20%
0%
54
Whole sample
No
94%
1-2
4%
3-5
1%
6-10
0%
< $5 million
94%
4%
1%
0%
$5 -$100 million
90%
6%
2%
1%
HOW MANY FULL-TIME EMPLOYEES RESPONDENTS REPLACED WITH (OR

CONVERTED TO) PART-TIME EMPLOYEES IN THE LAST SIX MONTHS
100%
80%
60%
40%
20%
0%
Whole sample
0
89%
1-2
9%
3-5
1%
6-10
0%
< $5 million
90%
9%
1%
0%
86%
9%
4%
1%
55
HOW MANY FULL-TIME EMPLOYEES RESPONDENTS ARE PLANNING TO

REPLACE WITH (OR CONVERT TO) PART-TIME EMPLOYEES IN THE NEXT SIX
MONTHS
100%
80%
60%
40%
20%
0%
Whole sample
0
92%
1-2
6%
3-5
1%
6-10
0%
< $5 million
92%
6%
1%
0%
86%
12%
0%
2%
56
HOW MANY PART-TIME EMPLOYEES RESPONDENTS REPLACED WITH (OR

CONVERTED TO) FULL-TIME EMPLOYEES IN THE LAST SIX MONTHS
100%
80%
60%
40%
20%
0%
Whole sample
0
84%
1-2
13%
3-5
2%
6-10
0%
11-15
0%
< $5 million
86%
12%
1%
0%
0%
70%
23%
5%
1%
1%
57
HOW MANY PART-TIME EMPLOYEES RESPONDENTS ARE PLANNING TO

REPLACE WITH (OR CONVERT TO) FULL-TIME EMPLOYEES IN THE NEXT SIX
MONTHS
80%
70%
60%
50%
40%
30%
20%
10%
0%
Whole sample
0
79%
1-2
17%
3-5
3%
6-10
0%
16-20
0%
< $5 million
80%
16%
3%
0%
0%
80%
16%
1%
1%
1%
58
HOW RESPONDENTS EXPECT THEIR BUSINESS TO PERFORM IN 2016

COMPARED TO 2015
100%
80%
60%
40%
20%
0%
SubstanVally
beper
28%
Somewhat
beper
47%
Exactly the
same
16%
Somewhat
worse
7%
SubstanVally
worse
2%
< $5 million
30%
47%
16%
6%
2%
17%
47%
20%
13%
2%
Whole sample
59
HOW CONFIDENT ARE RESPONDENTS THAT THEIR BUSINESS WILL GROW IN

2016
100%
80%
60%
40%
20%
0%
Extremely
condent
40%
Somewhat
condent
43%
Somewhat
uncondent
12%
Extremely
uncondent
5%
< $5 million
40%
43%
11%
5%
38%
37%
19%
6%
Whole sample
60
THE MOST SIGINIFICANT CHALLENGE FOR BUSINESS IN 2016

100%
80%
60%
40%
20%
0%
GeneraVng
new
customer
leads
29%
Hiring
quality
employees
Gerng
capital to
grow
Retaining
exisVng
customers
Paying bills
18%
16%
7%
7%
< $5 million
30%
16%
18%
7%
7%
5%
21%
33%
8%
12%
2%
8%
Whole sample
61
Upgrading Purchasing
technology or leasing
infrastructu equipment
re
5%
3%
Other
None
7%
7%
4%
7%
7%
1%
10%
4%
HOW THE FEDERAL INTEREST RATE HIKE COULD IMPACT RESPONDENTS

BUSINESSES
100%
80%
60%
40%
20%
0%
My businesses' growth
will be restricted
(inability to secure
contracts and expand to
new markets).
19%
My business would not

be able to hire new
employees.
I would not be able to

raise needed capital.
The interest rate will

have no aect on my
business.
8%
14%
60%
< $5 million
18%
8%
14%
60%
25%
7%
11%
57%
Whole sample
62
IMPACTS OF UNSUCCESSFUL FINANCING EVENT IN THE NEXT SIX MONTHS FOR

THOSE PLANNING TO RAISE CAPITAL (MULTIPLE SELECTIONS)
100%
80%
60%
40%
20%
0%
Whole sample
63%
37%
15%
10%
No expected
impacts on
growth,
business size, or
hiring plans
21%
< $5 million
65%
38%
15%
10%
21%
46%
46%
0%
0%
38%
63
Slower business Reduce number

growth
of employees
(layos)
Sell business
assets or shut
down
Hire fewer new

employees than
planned
PERCENTAGE OF RESPONDENTS HEDGED THE FOLLOWING AREAS IN THE

LAST 12 MONTHS
100%
80%
60%
40%
20%
0%
Currency risk
45%
Commodity risk
44%
Interest risk
32%
< $5 million
47%
44%
32%
22%
56%
33%
Whole sample
64
PERCENTAGE OF BUSINESSES THAT HAVE A FINANCIAL RISK MANAGEMENT

POLICY
100%
80%
60%
40%
20%
0%
Whole sample
Yes
13%
No
76%
Unsure
11%
< $5 million
12%
77%
11%
20%
70%
9%
65
THE CLOSEST PERCENTAGE OF RESPONDENTS EXPOSURE THAT THEY

TYPICALLY HEDGE
100%
80%
60%
40%
20%
0%
66
Whole sample
25%
71%
50%
19%
75%
6%
100%
4%
< $5 million
71%
19%
5%
5%
75%
13%
13%
0%
ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS: WHOLE SAMPLE

30%
25%
25%
20%
15%
10%
5%
10%
6%
1% 2%
4% 3% 3% 4%
6%
2% 3%
7%
5% 5% 5%
0%
Decline
67
Increase
2% 2%
5%
0.8%
ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS : REVENUES UNDER $5M

30%
26%
25%
20%
15%
10%
5%
9%
6%
4% 3% 3% 4%
2% 3%
2%
2%
6% 7% 5% 5% 5%
0%
Decline
68
Increase
1% 2%
5%
0.3%
ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS :

REVENUES FROM $5M TO $100M
25%
20%
20%
15%
10%
10%
5%
2%
1%
2%
4%
11% 11%
7%
2%
3%
2%
7%
3%
0%
Decline
69
Increase
4%
6% 6.4%
2%

(NEXT 12 MONTHS): WHOLE SAMPLE
25%
20%
20%
15%
15%
9%
10%
5%
13%
6% 6% 6%
2%
2% 3%
2%
1% 1% 1% 1% 2% 1%
0%
Decline
70
8% 8.6%
Increase

(NEXT 12 MONTHS): REVENUES UNDER $5M
25%
21%
20%
15%
15%
12%
9%
10%
6%
5%
2%
1%
1%
1%
1%
2%
1%
6%
6%
3%
2%
0%
Decline
71
8% 8.8%
Increase
3%

(NEXT 12 MONTHS): REVENUES $5M TO $100M
25%
21%
19%
20%
15%
10%
5%
8%
1%
3%
2%
10%
11%
6%
6%
7.0%
4%
0%
Decline
72
Increase
3%
4%
VII. ABOUT THE RESPONDENTS
73
DETAILS ABOUT THE RESPONDENTS

GEOGRAPHIC LOCATION
Less than or equal to 10
11 - 25
26 - 50
51 - 75
76 - 100
101 - 150
151 - 200
more than 200
ME
WA
ND
MT
OR
ID
SD
CO
AZ
AK
NM
IL
KS
OK
TX
IN
MO
PA
OH
MD
WV
VA
KY
NC
TN
AR
LA
NY
MI
IA
NE
CA
HI
WI
WY
NV
UT
VT NH
MN
MS
AL
SC
GA
FL
74
MA
RI
CT
NJ

INDUSTRY
4%
4%
4%
5%
6%
7%
75
4% 3% 1% 2%
30%
11%
8%
11%
Services
Retail trade
ConstrucVon
Finance & real estate
Manufacturing
Health care
InformaVon technology or services
TransportaVon and warehousing
EducaVonal services
Arts, entertainment or recreaVon
Forestry, shing, hunVng or agriculture
Wholesale trade
UVliVes & mining
Unclassied establishments

ANNUAL REVENUES
1% 2%
9%
4% 2% 4% 5% 5% 3%
6%
5%
6%
12%
11%
12%
76
14%
$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

ANNUAL INCOME
8%
12%
2% 2% 1% 1%
4% 3% 10%
10%
7%
10%
17%
77
13%
NegaVve (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 - $100,000,000
Greater than $100,000,000

TOTAL BUSINESS ASSETS
2%
5% 3% 11%
3%
6%
7%
6%
8%
9%
8%
9%
12%
78
11%
$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

FIRM AGE
Less than 1 year
4% 6% 5%
41%
9%
12%
23%
At least 1 but less than 2

20 or more
79

NUMBER OF FULL-TIME EMPLOYEES
3% 12%
9%
18%
80
8%
50%
1-2
3-5
6-10
11-15
More than 15

NUMBER OF PART-TIME EMPLOYEES
2%
5% 4%
1-2
3-5
6-10
11-15
More than 15
13%
45%
31%
81

NUMBER OF FEMALE EMPLOYEES
2%
5%
15%
6%
1-2
3-5
6-10
11-15
More than 15
26%
46%
82

PERCENTAGE OF CERTIFIED MINORITY-OWNED BUSINESSES
100%
80%
60%
40%
19%
20%
11%
20%
0%
Whole sample
83
< $5 million

MINORITY-OWNED TYPES
100%
80%
60%
40%
20%
0%
African American
Owned
62%
Hispanic American
Owned
16%
Asian American
Owned
8%
Service-Disabled
Veteran Owned
8%
NaVve American
Owned
7%
< $5 million
64%
14%
7%
7%
7%
14%
43%
29%
14%
0%
Whole sample
84

PERCENTAGE OF CERTIFIED WOMEN-OWNED BUSINESSES
100%
80%
60%
40%
20%
21%
19%
20%
0%
Whole sample
85
< $5 million
PERCENTAGE OF BUSINESSES THAT CURRENTLY EMPLOY ANY MINIMUM

WAGE WORKERS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Whole sample
86
9%
10%
< $5 million
10%
HOW WILL RESPONDENTS PAY FOR THE INCREASE IN WAGES IF THERE IS AN

INCREASE IN MINIMUM WAGE
Scale 0-7: 1 most likely to occur, 7 least likely to occur
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Lay-o
employees
ReducVon in
community/
charitable
spending
Labor cost
increase will be
oset by a
producVvity
increase (higher
sales or output)
ReducVon in
employee
hours
ReducVon in
prots to
owners/
investors
Whole sample
3.6
3.5
3.5
3.2
3.0
< $5 million
3.4
3.4
3.5
3.0
3.3
2.8
2.5
2.8
7.0
4.3
4.8
5.2
0.3
1.6
2.0
2.7
87
Increase prices ReducVon in

to my
costs elsewhere
customers
(suppliers,
materials, rent,
uVliVes,
adverVsing,
etc.)
2.6
2.5
Other
2.7
About Pepperdine Private Capital Markets Project

The 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 Universitys Graziadio School of Business and Management
A leader in culVvaVng entrepreneurship and digital innovaVon, the Pepperdine University Graziadio School of Business and Management focuses on
the real-world applicaVon of MBA-level business concepts. The Graziadio School provides student-focused, globally-oriented educaVon through
part-Vme, full-Vme, and execuVve MBA programs at our ve Southern California locaVons and Silicon Valley, Santa Barbara, and Dallas campuses as
well as through online and hybrid formats. In addiVon, the Graziadio School oers a variety of master of science programs, a bachelor of science in
management degree-compleVon program, and the Presidents and Key ExecuVves MBA as well as execuVve educaVon cerVcate programs. Follow
the Graziadio School on Facebook (www.facebook.com/pepperdine.graziadio), Twiper at @GraziadioSchool (hpps://twiper.com/graziadioschool)
and LinkedIn (hpps://www.linkedin.com/edu).
88
Thank You
Craig Everett, Ph.D. MBA
Director, Pepperdine Private Capital Markets Project
http://bschool.pepperdine.edu/privatecapital
craig.everett@pepperdine.edu
310.506.8543
89

Pepperdine Private Capital Markets Report Q2 2016

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Second Quarter 2016

Craig Everett, Ph.D.

DUN & BRADSTREET

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

Demand for external financing....15

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

Expected demand for external financing....39

Expected capital access (success) rates...44

Hiring/growth outlooks and financing failure impacts50

VII. About the respondents..73

I. ABOUT THE PRIVATE CAPITAL ACCESS (PCA) INDEX

ABOUT THE Q2 2016 PRIVATE CAPITAL ACCESS (PCA) INDEX SURVEY

PCA Index 27.8

PCD Index 37.0

SMALL BUSINESS PCA AND PCD INDEX RESULTS

SMALL BUSINESS PCA AND PCD INDEX RESULTS

PCA Index 26.6

PCD Index 38.8

LOWER MIDDLE MARKET PCA AND PCD INDEX RESULTS

LOWER MIDDLE MARKET PCA AND PCD INDEX RESULTS

PCA Index 34.7

PCD Index 32.3

ANNUAL REVENUE CHANGE EXPECTATIONS

II. DEMAND FOR EXTERNAL FINANCING

DEMAND FOR FINANCING BY PURPOSE

Planned growth Working capital

STRENGTH OF DEMAND FOR FINANCING

Growth due to Withdraw wealth

RESPONDENTS INDICATING HIGH AND EXTREMELY HIGH DEMAND FOR FINANCING

HOW MUCH FINANCING RESPONDENTS ARE SEEKING

$100,000 - $500,000 - $1 million - $2 million - $5 million - $10 million

PERCENTAGE INDICATING YES TO IS THE CURRENT BUSINESS FINANCING ENVIRONMENT

Your ability to hire new employees?

HOW DID RESPONDENTS BUSINESS OPERATE IN THE LAST QUARTER

$5 million -$100 million

RESPONDENTS PRIMARY SOURCE OF CREDIT IN THE LAST QUARTER

$5 million -$100 million

Large bank Community

WHY WAS THAT THE PRIMARY SOURCE OF CREDIT IN LAST QUARTER

$5 million -$100 million

WHAT WAS RESPONDENTS BUSINESS MOST DIFFICULT CHALLENGE IN THE

$5 million -$100 million

PERCENTAGE OF BUSINESSES THAT HAVE FINANCING COMING FROM

PERCENTAGE OF RESPONDENTS WHO ATTEMPTED

III. ACCESSIBILITY/SUCCESS RATE

IS IT DIFFICULT OR EASY TO RAISE

BANK LOANS: FINANCING SUCCESS RATES BY BUSINESS SIZE FOR PRIOR

ASSET BASED LOANS: FINANCING SUCCESS RATES BY BUSINESS SIZE FOR

PERCENTAGE OF RESPONDENTS THAT HAVE CONSIDERED SBA LOAN FOR

$5 million -$100 million

PERCENTAGE OF RESPONDENTS THAT HAVE SUCESSFULLY SECURED SBA

$5 million -$100 million

PERCENTAGE OF THOSE WHO ATTEMPTED TO RAISE FINANCING BY TYPE OF

Biz online Tax prep.

MAIN PURPOSE FOR RAISING OR ATTEMPTING

REASONS FOR BUSINESSES NOT ATTEMPTING TO RAISE EXTERNAL FINANCING

Enough Sucient Business Lack of

PERCENTAGE OF OWNERS WHO TRANSFERRED PERSONAL ASSETS TO

TYPES OF PERSONAL ASSETS TRANSFERRED TO BUSINESS DURING PRIOR

IV. EXPECTED DEMAND FOR EXTERNAL FINANCING

PERCENTAGE OF BUSINESSES PLANNING TO RAISE FINANCING IN THE NEXT

PERCENTAGE OF RESPONDENTS INDICATING DEMAND FOR NEW FINANCING IN

$5 million -$100 million

STRENGTH OF EXPECTED DEMAND FOR NEW EXTERNAL FINANCING IN THE