How to Raise Financing
So, you want to start a business, or maybe you want to expand an existing business. Of course, raising financing is a key step and it might seem complicated to many but no worries, there are plenty of resources out there to help you. It’s a matter of planning well and analysing all the options to pick the best one for your business.
Conduct a Comprehensive Business Assessment
You need to first do a fair and complete assessment of your business. It’s important that you look good before you ask for money: have a good, innovative idea and know what else is out there, who’s playing, what income they made doing something similar, if you need to move and who will benefit from your company.
TIPS: Here are some important questions to ask yourself before you start asking others for money:
1) How much capital do I need and when do I need it?
2) From whom do I want money? Do I respect them? What compromises will I accept?
3) What is the value of my company?
4) Who might be interested in my company?
5) What are my legal responsibilities to potential investors? Know the legalities before raising support.
How to: Assess a Business, Write a Business Case.
Worksheets: Management Audit, Strengths & Weaknesses Analysis, Strengths and Weaknesses, Business Analysis, Self-Assessment.
Work out a product pitch. This should first be a one-liner you can explain in an elevator. Example, “I’ve designed a new kind of underwater camera that will benefit photographers, travellers, marine specialists, and nature enthusiasts and I have a detailed plan on how to produce it, market it and get it into the hands of the target market.”
When you can describe your plan in that short of words or less, create a full pitch for it, with all the pertinent details from your business plan. Remember, you are asking people to either invest or donate money. Prove that you are worth the investment.
TIPS: Before writing a full business plan, start by covering the essential elements: product/service, market, target customers, marketing strategies, business model & revenue sources, competitive advantages, etc.
Case: Business Case.
Plans: Business Plan, Marketing Plan, Strategic Plan, Executive Summary.
PowerPoint: Business Financing Deck.
Instead of planning to raise a large sum, consider taking money from your savings. Or try to create a product or service that you can sell and start selling. Use the revenue you are making to finance future product improvements and development. This is called Bootstrapping.
TIPS: Another good option is to self-finance the early steps and seek funding half-way through the process – after you have incorporated and done all the research and are looking to start production and/or launch your services.
Just because you know them well does not mean they do not deserve the same respect, presentation, and information you would give someone you just met and are asking for money. Give them the full business plan and your complete pitch. Also, think of it as a safe practice zone before you present your pitch to a potential investor.
Agreements: Payment Guarantee, Payment Guarantee, Demand Note, Promissory Note, Debenture (Short Form), Financing Agreement (Short Form).
Consider a Loan
Banks and other traditional lenders exist. Be sure to read all the paperwork before signing up. It usually easier to get a loan for an established business rather than a startup but you don’t have much to lose to ask your banker! Or even better, a few local banks…
TIP: Consider microloans from private companies and non-profits, usually up to $35,000. Examples include Patriot Express loans, and Small Office/Home Office (SOHO) loans.
Also, not precisely a loan, but some of your vendors might defer payment until you see return on the product, which is called Vendor Financing.
Forms: Bank Loan Application Form and Checklist, Loan Application Review.
Correspondence: Letter of Request for an Equity Investment.
Agreements: Loan Agreement, Credit Agreement.
Spreadsheets: Loan Calculator with Extra Payments, Financial Ratio Calculator, Investment Calculator.
Crowdfunding is a great way to raise funds, especially if you have a business idea that is easily accessed through the Internet. By using one of the platforms below you can sign up for an account, create a project, make a pitch, and then share the project over social networks, your website, and a myriad of other ways. People can donate to your project from all over the globe, which is free advertising for your business after it gets funded!
TIP: Not all products, projects or companies are appropriate for crowdfunding so make sure you take the time to read and learn, to understand all the pros and cons.
Before you approach an investor, figure out all the terms. You will be dealing with Term Sheets, which are the documents involved with signing up investors. In these sheets’ investors will try to determine your valuation. A valuation is a number value on your company, its assets, and its potential income.
TIP: Build a pipeline of investors: have lots of meetings and make the process competitive. Know your numbers for the meeting – look back to your research. Keep your business plan handy. If you decide to follow-through with investors, look below for some industry advice.
Checklists: Term Sheet Important Things to Know, Due Diligence Requisition List, Dealing with Shareholders and Investors.
Worksheets: Term Sheet, Term Sheet for Series A Round of Financing.
Agreements: Collateral Debenture, Convertible Debenture, Debentures and Trust Deed, Debenture Pledge Agreement, Participating and Convertible Debenture, Shareholders Agreement, Adhesion to the Unanimous Shareholder Agreement.
Find someone with capital who likes your idea and suggest a partnership. Or find someone with business connections. Or find someone who balances your shortcomings and/or has more experience in an aspect of your business plan. A partner is who is all these things is the best, but even one of them could help you a lot in your venture.
How to: Form a Business Partnership.
Take a second mortgage, dip into your Superannuation, and/or put it all on your Credit Card. It can be a risk, but it can also be a great way of getting your business off the ground fast.
Agreements: Pooling Agreement, Mortgage.
Most governments – at the local, state/province and country level – support new businesses. Check out what grants and programs might be available for your enterprise.
Proposals: Developing a Grant Proposal, Writing the Grant Proposal.
These methods might not be for all businesses, but they are worth considering:
Equity Crowdfunding: like crowdfunding but allows people all over the globe a chance to make a small investment in your business.
Peer-to-Peer Lending: like crowdfunding too, but instead it is a bunch of small loans.
Incubator Funding: funding that starts out private to a select few but if your business has great potential, that’s one of the best ways as you’ll get visibility and mentorship for the same “price”!
Correspondence: Letter of Request for an Equity Investment.
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