Be Open to the Power of Funding

You’ve got a business up and running and are eagerly anticipating the moment in which the thrill of generating profit finally supersedes the money, effort and constant vigilance you have already pumped into setting it up.

Now is the moment to look around for external funding methods. Often when setting up a business we begin to think of it as our ‘baby’ – it requires constant care and attention, cannot be left alone, and most of all we are extremely vigilant of who gains access to control over it.

Key to accessing the right type of funding for your business firstly means not being afraid to get to know all the different types of financial backing that are available to any business owner. You might be pleasantly surprised to find that your ‘baby’ actually finds solace in a number of different potential ‘babysitters’.

Whether you are looking for $10,000 or $1m there are a number of different ways to go about securing it and ensuring that the funding fits the scope of your venture, directing you towards realistic growth and achievable success. The one–size–fits–all approach obviously cannot work for the myriad of diverse businesses that require external funding.

Here’s a quick overview and the pro’s and con’s of each type of funding available to ensure you work with the one most suitable to your business.

• Banks: the bank can help accelerate your growth with a loan. Loans can be suitable growth capital, and it’s especially a good way to go when there’s asset backing, i.e. leasing machinery, trucks or the like, or the business has a real estate component. The good news is you won’t have to give away a percentage of your company, however the loan may be tied to assets you already possess. In the absence of such assets some banks will still not be easy to work with and might reject the loan request.
• Venture Capital: an investment from a VC can be an excellent way to raise capital at an early stage of the business. You won’t have to repay loans or interest and you and your new partner will share the risks together. Investors can bring new opportunities and skills to the business, but you must be prepared to let a large number of shares go; you will eventually own a smaller part of the company. Investments from Venture Capitalists can be expensive and extremely demanding, not to mention the abysmally low acceptance rate…you have less than a 3% chance!
• Angel or Private Investors: it can prove extremely valuable to receive financial backing from individual private investors, seeing as this agreement often is accompanied by a wealth of expertise and valuable insight that the business owner can make use of. On the other side this partnership often amounts to quite a large part of the company being given away in equity to the investors, whom you can expect to have already formulated an advantageous exit plan for themselves. As a serious bonus when you engage with good investors is they’ll often help you grow the business trough advice and connections.
• Crowd–funding: crowd–funding allows an unparalleled degree of freedom in raising fast capital, often without paying fees upfront. It provides an alternative option to traditional funding methods and can give your company positive online exposure and leverage. However, because the crowd-funding platforms were largely unregulated up until recent times there are risks associated with idea theft (copyright everything!) and returning the funds if the total goal is not met. The huge news is that for now all Australian crowd–funding is donation-based, so you’re not giving away ownership to the company.
• Grants: accessing government grants can be a good way of securing financial control of your business: you won’t ever have to pay a grant back or interest on it. However, grants always come with a set of preconditions surrounding project topics (you must pick a suitable grant to match the project) and usually are tied to a long–winded and stressful application process. Governments do not usually release all the funding at once, they expect a report back from the business owner on pre-agreed terms and missing terms in your grants condition may well mean you don’t receive more funds.
• Alternate funding: competitions and awards to apply for exist in bounty, try going for the ones that specifically suit your project. Other methods of funding such as peer to peer lending can be good for attracting quick funding and avoiding bank brokerage and high interest rates, however, the lack of bank-like scrutiny could eventually leave your business in a debt you can’t repay.

Remember, financial backers are always going to be asking themselves the question “what’s in it for me?” and the answer should already be visible in –you’ve guessed it– your business! What you already have and can bring to the table is just as important as what you promise to achieve. An investment is a whole package, not just a sum of money thrown at a good idea: they are investing in you, in your calculations and your research.

To find out exactly which type of investment will maximize your business’ growth potential, and to discover what real investors want to hear from you, please join us at our Grant Connector event.

Want to tackle crowd-funding but not sure where to start? You need to be at Funding Connector