Raising capital to start a new business may seem very stressful, but it need not be overwhelming if you follow a few basic business practices. If you have a viable idea that will net a return for your investors and prepare a compelling business plan the chances are good that you can find investors to join you.
If you’re thinking about getting outside or equity capital to help fund your business, there are some things you need to do first, that can make your business more attractive to investors. Follow these simple ideas, and you’ll be well on your way to raising the money you need.
First, always talk to a qualified business attorney (not your family lawyer). There are a lot of laws pertaining to how equity capital can be raised from the public, and the laws change often. You need someone who understands not only these laws but also how to make sure that any business contracts are written to protect you and your business.
Talking about your company public. Although security laws in some countries have made it easier for companies to go public, and offer stock as a way to raise needed funds, this is still probably the riskiest choice. It is usually not a recommended option for very new or very small companies. Because of the number of legal issues involved, consulting with a knowledgeable attorney beforehand is vital. There is also a lot of stress involved in running a public company, and a considerable loss of autonomy and control. Before making this choice, be absolutely sure that this is the wisest course of action for your business.
Using your savings or credit cards. This is the most common way for entrepreneurs to raise needed business capital. Before choosing this method, however, talk with your financial advisor. You want to look at the long-term consequences of using your savings, life insurance or credit cards, especially in the event that your business venture fails, or does not bring in the projected return on investment (ROI). If you do end up financing your project using credit cards, make sure that you shop around first, and find the card that will offer you the best rate and gives you the most “bang” for your buck.
Venture Capital and Angel Investors. Before even looking for venture capital, look at your company from an outsider’s point of view. Ask yourself these questions: Does your company have a solid track record?. Does your company have the potential of becoming very large in the next five to seven years? Does your company own a good percentage of its market, or does it stand to gain a large percentage in the next 12 to 18 months?. If you can answer yes to the above questions, your next step is to find a venture capital firm whose ideals and goals are in line with yours. Your next step should be to look at your “circle of influence” and see if you know someone who can give you a personal introduction to someone at the venture capital firm.
No matter which choice you make in looking for equity capital, by planning ahead, doing your homework and following the advice of your attorney, you’ll increase the probability of raising the money you need and making the relationship between you and your investors a profitable one.