So
you are thinking of raising capital for your business by bringing in a new
equity partner (i.e. with funding) and giving up some stake in your business to
do so?
New
and emerging businesses often demand fresh capital. As a founder drives their
business and builds their empire, they are often prepared to take a longer term
view, reducing their 100% holding by bringing in new capital to fulfil their
dreams.
However
raising capital is a difficult exercise for young and entrepreneurial
businesses. In essence you are asking investors to give you their cash
and speculate that
you are the next Henry T. Ford who’s just about to commercialise the automobile
(such high expectations are not beyond some investors, such is the premium they
place on their capital).
Let’s
consider Henry Ford. He started one company with outside capital that
ultimately dissolved, commenced
a new one that he left (the forerunner to Cadillac) and then created another
company with other investors’ money before the business finally became successful.
While
Henry is a great lesson in innovation, commercialisation and tenacity, he also
knew what it was like to ask for investment capital (and clearly, he was quite
good at it!). So if Henry can ask and receive capital, given his early somewhat
chequered career, so can you.
To
be as successful as Henry Ford, as well as being entrepreneurial you need to
understand the capital raising process and the mindset of the people you are
likely to deal with.
Investment
proposals today (post GFC) are now more than ever likely to face very
conservative, deliberate people who carefully assess investment risk and
return. Even if the investor appears to have ‘bought in’ they are usually smart
enough to employ an army of advisors to make sure they don’t commit before at
least hearing theirpaid for investment advice.
The
background of such investors is usually that of people who have been successful
in business, now have financial capacity and regularly receive a range of
alternative investment proposals to consider. If your investment appears to
make commercial sense, you have a business plan, a strategy, good people and you can demonstrate this to
the investor and their advisors, then you and your business might be worth “a
punt”.
Don’t
underestimate the emotional aspect too – investors are human and they prefer to
do business with people that they like.
Here are our 7 must-dos for capital raising –
take care of these before commencing
the process.
- Ensure you have exhausted all attempts at raising finance from banks and other financiers. Family and friends might, might be a possibility too.
- Look at your business through the eyes of an investor – have an answer for their burning question “What’s in it for me?”
- Select a good advisor very carefully. Look for advisors who have credibility in the market space they occupy – don’t choose a local consulting firm if you are looking to raise $500,000 and above
- Look for an advisor you feel comfortable with – you’re going to spend a lot of time with them so you might as well enjoy their company.
- Ensure that you are actually ready to give up some equity in the business – this is critical.
- Recognise this could be a 6 month process and that the business still has to function – so make sure you have enough management capability within your business. (Also harden up! This will be a very busy, frustrating and trying time for you – it’s stressful.)
- Go back to Tips 3 and 4 and make sure you’ve got this right.
Don’t
forget the non financial benefits which may come out of this – new business
connections, a fresh set of eyes and the capacity to draw on additional
business experience – all of which could greatly assist you in achieving your
business goals.
Go
for Gold!!!
GBSH Consult is a profit improvement and
turnaround global consulting firm that delivers essential advantage to the
world's top influential businesses, individuals and organizations.
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business investors for small business can be found on professional networks like Associare.com. They are always on the lookout for businesses to invest in.
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