Is there a lack of funds that hinder your business? Looking for ways to fund your new business but fear the thought of monthly loan deductions? If you said yes to the above, capital financing is what your business needs. Share financing helps you to collect money without having to replace the payment burden.
Its not money for nothing. Certainly, capital financing is not a loan, but it is also not a gift! When you raise equity funds, you share a stake in your company. This ownership is in the form of ordinary shares or preference shares. If the company gives a profit, investors get a share of it in the form of dividends. In addition to taking part in the company, investors can also participate in the companys board and take an active part in managing the business. Bone that is stuck in the throat!
Although informal sources like family and friends can provide equity financing, the main source of professional capital financing is venture capitalists. These are deeply funded financial guides in the business of investing in new or risky companies in exchange for very high returns.
So what are shareholders looking for?
Growth potential: Share investors usually target the stars, and their only concern is how soon you can get there. Thats why companies on a high growth path that can deliver solid returns on investments are more likely to get funding.
Output Strategy: Especially venture capitalists are looking for companies that have a clear exit strategy. They do not want to hang until its time to go into the sunset. Five to seven years is all they will give you, and at that time they are expected to triple their investment to a minimum. If they can not find a way to pull out through strategic sales, they will not play ball.
Management Quality: Since capital financing is about investors climbing onboard, you can bet that they want to know who is the captain of the ship. They pay more attention to management capacity than anything else.
While interest payments will not significantly outweigh your own equity financing, it will make another set of requirements for your business. Pathways and disadvantages before making a decision.
The best part is that you only pay back your investors if the business is going well. That way, youre not the only one who carries financial risk. The right venture capitalist can get valuable knowledge, experience, contacts and help you with strategy and decision making. In addition, it is likely to ensure additional capital financing from existing investors if the business is performing well.
In the back you must accept a dilution in your shareholding. In addition, some investors may be very high maintenance - so be prepared to answer a lot of hawks! This is the hardest for independent entrepreneurs.
Once you have decided to go for equity financing, break your business plan. Talk to your financial and legal advisors before reaching out to potential investors. Be clear in your mind about the following:
a How much funding is needed and for what purpose?
b How long do you need these funds?
c How much share are you willing to share?
It is best to answer these questions in your business plan and tailor the information according to the specific investors you plan to approach. Share financing can be a blessing for new entrepreneurs if used appropriately with targeted goals. Referring to books like Financing Your Small Business and How To Increase Early Private Capital Financing from and Financing Your Small Business to find out how it works for you.