Many entrepreneurs are inspired by the success stories highlighted in business journals or shown on the television series Shark Tank. These ‘rags-to-riches’ stories showcasing small-business owners who strike it rich motivate aspiring entrepreneurs looking to make a success of their own company. At some point, however, they will realize that to take their company to the next level of profitability, they’re going to need to expand. This is where many entrepreneurs give up. The idea of seeking funding can be intimidating and overwhelming, and many entrepreneurs have little knowledge of how to handle investors. If you’re trying to take your company to the next level, here’s what you need to know.
Before You Look for Investors
The early days of a business can be difficult. Without a large infusion of cash, it can be tough to navigate the day-to-day operations, wondering how you’ll manage to make payroll, pay the bills, and afford to keep the company going. To avoid long-term problems, resolve to keep expenses to a minimum.
- Limit expenditures. Get rid of any expense that isn’t absolutely necessary. Be relentless about cutting the budget down to its bare bones. Put every available dollar toward making the company viable.
- Find resources. Scour classified ads, shop garage sales or ask friends and family for items you may need. Office supplies, tables, computer equipment and printers can all be obtained second-hand, a cost-saving measure that will help you get up and running faster.
- Opt for slow and steady. It is tempting to rush a business, wanting to make it an overnight success. Most businesses, however, flourish with a slow and steady approach. Instead of trying to grow too fast, concentrate on building a reliable company that can achieve dependable growth.
- Build corporate culture. As your company grows, it is important to consider the culture of your business. Are you relaxed and laid-back? Do you prioritize humanitarian efforts? Is your focus on hiring those with experience in an industry, or are you trying to be innovators? Establishing the culture of your business will help solidify your corporate identity. This will not only help you maintain your focus, but it will also help give potential investors an idea of who you are as a company.
Types of Funding
The development of crowdfunding has changed the way startups think about investors. No longer confined to the traditional methods of investing, entrepreneurs have options when they begin to consider the type of funding most suited to their needs.
- Angel Investors
Angel investors (angels) typically invest during the early stages of a business. This type of investment is perfect for the entrepreneur who needs capital to develop or start their project.
- Venture Capitalists
Venture capital investors prefer to operate during the expansion of a company. They look for opportunities to fund the acquisition of new factories, the addition of new product lines, or the growth opportunities a company may be experiencing.
- Equity Crowdfunding
Crowdfunding sources can be used at any stage of development. The average investment for crowdfunding is typically less than $1 million, and is generally done by large groups of people who find opportunities online.
Consider the Value
Each type of funding brings a different value to the company, outside of the initial financial influx. Entrepreneurs must consider their needs for investor involvement before seeking funding sources. Angel investors are typically cash-only investors. They provide the funding but offer limited support in terms of advice and guidance. Venture capitalists bring the highest value along with their investment. They are often experts in their industry and bring a wealth of information and advisory support in addition to an established network. Crowdfunding brings a mix of individuals, who may wish to have extensive involvement in the company or who may wish to invest only. Depending on the size and scope of your crowdfunding campaign, entrepreneurs may find they have dozens of people who suddenly want to offer advice on the next steps of the company.
Reasons to Seek Funding
- You want to expand to new markets. If your company is cash-flow positive and you’re wanting to expand your products into a new market or new industry, outside funding may give you the push you need.
- Technology has changed. If you’re needing help implementing new technologies that will improve your process, venture capitalists may offer your company assistance. Have solid evidence of how incorporating the new technology will improve your company and why the new additions are important.
Finding ways to take your company to the next level is important for the health and growth of a business. Using investors such as angels, venture capitalists, and crowdfunding sources can be tricky, but it can give you the much-needed cash you need to grow your business.