Raising finance for your business in the 21st Century!
Is it more competitive to raise finance, with the outbreak of COVID-19?
Over the last several weeks, with the outbreak of COVID-19, and the uncertainty of the world, what does the landscape for raising finance going to look like?
This is such a vital area for a business raising finance, whether your existing or a new business it's a BIG challenge!!
The last few years have proved very difficult for individuals and businesses to raise the necessary funds to push the idea and business forward you have many area’s to raise funds, but in these times there is NO easy way to achieve this — just take a look at the UK Government effectively making the banks lend money to businesses and companies, just to keep them afloat through the world pandemic of COVID-19.
This was because the banks always need the business to meet the necessary criteria, of which many loans for support were turned down until the UK Government relaxed the laws and told the banks to lend…
But this will never change, and writing a great business plan is essential to the development and structure if you like a road map on where your business could be in a 3/5 year period, more on the business plan over the next few weeks.
Below are a few hints and idea’s on how you can look to raise financial support and the areas your business idea could fit for funding…
The Early Stage Funding:
Sweat equity’ & bootstrapping:
All start-up businesses begin with the owner’s time, effort and money. Bootstrapping involves growing the business organically through maximising the immediately available resources.
Before and alongside seeking external financing, entrepreneurs should bootstrap as far as much as possible.
Ultimately you want to create a seamless process to raising finance…
Friends, Family & Contacts:
Business start-ups often rely on early investment by friends, family and contacts. Whilst they can provide a vital source of cash, the opinions of friends, family and many contacts will often be based in your favour.
They should not be relied upon to test your business case.
A bank funding loan may be possible from your bank, and banks will often lend amounts that match external equity investment.
Whilst bank funding is relatively inflexible when compared with equity investment, debt is naturally an important source of initial seed funding and for slightly later top-up funding.
Business Angel equity funding:
Business Angels are often only prepared to invest in an early-stage venture once something about the venture has been proven or the initial risk has been perceptibly reduced.
There are various elements that can be quickly and easily implemented to make a proposal more attractive to such investors, but which way should you go?
Business Angel equity investment can be the most useful source of investment into an early-stage venture because Business Angels should be able to offer more than just money to make the business succeed.
Asset finance:
Asset finance comes into play primarily for capital expenditure. This is an important cash flow solution to business owners in that they are effectively renting, as opposed to owning, assets required by the business.
Factoring — the provision of up-front cash for invoices by banks and other debt lenders.
Corporate venturing (early stage):
Equity from and or debt funding from companies who have noticed your product and service can be useful to the early-stage venture, but there can be substantial pitfalls when the venture is young.
A larger company may wish to take you over if you pose a threat to their market share.
The right relationship can be achieved through a well planned and negotiated shareholder agreement, but corporate venturing is best left until later when the venture is in a stronger position financially.
When it has gained a position in the market and when it has achieved a more profitable price for its equity.
Venture Capital:
Venture Capital funds can have deep pockets, but they can also aim to obtain a high share of your equity and significant control of the running of your company.
The solution involves the correct funding strategy and again, the right shareholder agreement.
Stock Market equity funding:
Many ventures start life with the plan of ‘floating on the stock market’, but in reality, most companies EXIT by way of a trade sale — selling to a larger company.
It can be useful or necessary for a company to pursue the market entry route and it can be a lucrative source of investment, but it can be expensive to go through the process and the demands and obligations placed upon the company substantially increase.
A few points above to help the process to raise finance, we know it’s going to be a tough time ahead for all business, so the more knowledge we have the better prepared we can be in these — uncertain times ahead…
The business plan is one of the most vital components for a business to move forward, more on this area over the coming months!
By: Peter Moore
