Raising start-up capital or helping to grow it can be a scary feat, but there are several different paths you can follow to find the funds you need. Here are six strategies you can research to raise capital for your business.
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Capital raising strategies
Whether your business is a budding startup or a Fortune 500 rock star with impressive cash flow, access to capital is key to building a strong business. Fortunately various financing solutions are available to help companies raise capital and take full advantage of market opportunities.
One of the hottest solutions when it comes to raising capital is crowdfunding. It’s exciting and incredibly public. You can quickly create a profile, record a video presentation, send a message to your friends and family, and hope to help spread it around the world.
To be successful you must:
Offer a hot product or service for financing.
Work with someone who is amazing at creating compelling movies.
Go wild with online marketing to attract potential followers to your profile.
Remember that with crowdfunding you are giving away a product or service, not capital. If you achieve your goal, it is your responsibility to deliver the exceptional products you promised in your campaign. [Read related article: What Is Crowdfunding?]
Venture capital is a form of equity financing that involves raising capital through the sale of shares. Like sharks on NBC Shark tank, venture capital firms provide financing in return for equity as part of an idea or concept. [Read related article: Private Equity vs. Venture Capital: What’s the Difference?]
To successfully raise money with a VC company, you must:
Connect to your network to bypass the guards and get a chance to present yourself to VC’s investment management.
Create the perfect pitch that explains the possibility exhaustively, then be prepared to answer some serious management questions.
You should go to a meeting with VC expecting it to look silly by the end. No matter how much research you do, there will be someone smarter than you on the other side of the table, or at least more experienced in your field. This is why you should approach VC companies.
Pitching will force you to improve your skills and work out your idea. You will absolutely learn something new, and you will likely learn about the weaknesses of your concept or idea that will help you build a stronger business in the years to come.
3. Banks and credit unions
Capture small business loan through a bank or credit union is a more traditional way of securing funding. Various investment options are available at leading banks in the US and Europe:
These funds are great for people with a solid credit history. However, it’s important to understand what you’re getting into as it is easy for a startup business to run into debt and end up in a financial nightmare. Debt capital is a risky way to finance a new business.
Traditional lenders will not be interested in learning about your struggles or better understanding market opportunities if you miss a payment. They will work quickly to collect your outstanding debt if you fail to meet the repayment terms. [Read related article: How to Get Your Business Loan Application Approved]
4. International financial solutions
Different countries have very different laws and regulations that help startups grow and gain access to capital. Fortunately, there are companies all over the world that provide financial advice. Working with a local partner is a great idea as they will have access to tools and information that will greatly facilitate the process of obtaining financial aid.
Are you thinking about applying for a loan online? Here are some tips to help you do it safely:
Check if the website processing your application uses Secure Sockets Layer (SSL) encryption. The address bar in the browser should indicate the presence of this additional layer of security.
Read the fine print at the bottom of the website. Many of these websites are not run by lenders but by third parties posing as lenders. In fact, the information you provide is sold to hundreds of lenders who will then fill your inbox with requests.
Always perform your due diligence and research the lender before agreeing to apply online. A good looking website is easy to deceive and mislead your personal information into the wrong hands.
6. Investors angels
Another equity financing option is angels who invest in a new business by providing start-up capital in exchange for equity in the company. Investor angels are often family members or loved ones, but it could be anyone who sees value in a startup. These investments may be one-off in-form payments seed capital or permanent financial support for a small company, allowing the investing person to become a shareholder.
Tips on how to prepare your business for fundraising
This step is especially important if you are a new entrepreneur as you will have no other evidence of how you are dealing with your financial obligations. If your personal credit score is low, investors likely won’t trust you enough to fund your business idea.
To build credit and increase your score, make sure you do the following:
Pay your bills on time.
Keep your balance low.
Pay off your debt.
Use your loan to pay for rent, utilities, or other monthly payments.
To really impress potential investors, try to get a score of 740 or higher. Obviously it’s better than average, but it’s a great goal to achieve if you want to secure funds as a business owner. [Read related article: When Does Your Business Credit Score Matter?]
2. Create a business plan.
Without a solid business plan, investors won’t feel confident in providing equity capital to your business. It’s important to create a business plan who determines who you are, what are your goals and how you can achieve them.
When it comes to attracting equity finance, you’ll want to focus heavily on financial projections to prove your business is worth the investment. In addition to detailing your cash flows, here are some examples of what to include in your plan:
When it’s time to ask investors for money or ask for a business loan from a bank’s loan officer, you’ll want to make a strong offer to attract their interest. This presentation should not only tell the story of your business, but also the details of the investment and the benefits it will bring to potential investors. Explain what they will get from the deal and how their commitment will eventually reward them. Focus on what your business can do for them, not what they can do for your business.
Also, prepare a terms and conditions sheet that outlines the terms of a future contract between you and your lender or shareholder so that everyone is on the same page.
4. Assess your financing options.
You don’t want to settle for the first investor interested in your business. Each source of financing has advantages and disadvantages that are worth getting acquainted with so as not to be surprised. Analyze and consider the above options to determine which type of financing is best for your business.
Sammi Caramela contributed to the writing and reporting of this article.