Seeking outside funding is not a prerequisite for modern businesses, but it can be an effective way to give your enterprise the kick start that it needs to thrive, grow and gain an advantage in an increasingly competitive market. While slow and organic growth is admirable, it is vital to recognize that investors can transform your business by enabling you to fund better tech, materials, talent and other assets.
Outside funding
You should always be vigilant about securing outside investment opportunities. Micro, small and medium-sized businesses often need to find funding on short notice to alleviate financial concerns or support expansion plans. Knowing when it is the right time to seek investors often comes down to effective business planning.
According to KPMG’s Head of Small Business Accounting, Bivek Sharma, determining your reasons for needing additional capital can help you decide the best route to take. He added: “For example, a start-up may need seed funding to help establish their concept before going for a larger round when looking to scale up. Established businesses may need investment that is focused on scaling.”
Finding the right investor
It is important not to get overawed by the dizzying array of funding options out there. You need to focus on your specific goals, objectives and needs and attempt to dovetail investment opportunities with them. As Sharma stated: “Just because some businesses raise millions through crowdfunding doesn’t mean it’s right for everyone. Consider every option and whittle them down.” Large corporations are well versed in getting the investment that they need to support their operations. For example, the former CEO of Noble Group, Yusuf Alireza, received the necessary funding to help his company through a trying time by selling its agricultural unit to a group of investors.
Peer-to-peer lending
As mentioned, crowdfunding and peer-to-peer lending can generate investment by matching a business with enterprises and individuals who are willing to lend it money. These third parties can also financially back a new service or product. Cutting out the middleman, i.e. the banks, allows investors to get a better rate of return, and you can borrow more cheaply. However, with peer-to-peer lending and crowdfunding, the lenders’ money isn’t as rigorously protected as other forms of investment.
Venture capital companies
Venture capital companies invest in enterprises with high growth potential, such as those in innovative tech, and they frequently offer very large sums exceeding $1 million. However, the drawback is that they usually want a bigger stake in your business and expect a higher rate of return. This option isn’t ideal for short-term funding, as investment decisions can take a while to come to fruition.
Angel investors
Enterprises can also apply for funding from angel investors, who provide a sizeable lump sum in addition to guidance and support for promising businesses. This is basically like venture capital investment but on a smaller scale. You have to apply for funding from these high-net-worth individual investors, and they often look for something in return, such as a place on your company board.
Other avenues for investment include corporate investment, private equity and government venture capital programs. Whatever path you decide to take, make sure that any investors whom you work with are reliable and can support your objectives without huge compromises. In addition, you may utilize an equity management platform and a fundraising modeling software to help you in planning, managing, and collaborating on startup equity.
