When You Need to Raise Capital for Your Business, You Need a Plan.
Whether you own a new business, an early-stage startup, or an established venture, you will likely need to raise capital for your business from time-to-time to cover startup costs, kick start growth, or secure working capital.
There are lots of options for funding, ranging from commercial lenders to venture capitalists, but it can be hard to find people or organizations willing to dole out large sums of cash to your small-to-medium sized business, especially if you don’t have a long financial track record. Additionally, smart business owners are looking to get the most bang-for-their-buck when they choose to take on debt and thus are looking for the best ways to maximize the impact of an investment without accruing too much liability.
If you’ve done the due diligence necessary to develop a solid business plan and the know-how to execute and deliver for your stakeholders, finding potential investors doesn’t have to be difficult.
We’ve compiled a list of 4 of the best strategies that you can use to position your small business to get the money you need to finance your business.
1. Come to the Table Prepared
Investors, especially those who are well-connected and deep-pocketed, don’t like to have their time wasted. Your job as a founder or a co-founder is to get their attention, keep them interested, and present the key information necessary to get them on board.
When trying to raise capital for your business, make sure that you are well-versed on your business model, current and projected costs and revenues, the net worth of your venture, past investment rounds, and any other information that you see as relevant to making a strong and transparent case for your business.
It’s also important to get a sense of what you can offer in terms of return on investment (ROI) and exit strategies for potential investors. An investor’s priorities lie in how they will profit from making a stake in your small business, and their evaluation is always dependent on that. Think about how are you going to deliver value through the use of a funder’s capital. Will you pay back the investment in the form of a loan, give investors an equity stake that will provide them with value in the future, or are you planning to sell your business in the future and distribute returns in that way?
It’s also important to understand the difference between giving away equity in exchange for investment and sourcing debt capital through loans or other sources. Know what is right for your business before entering the investment market.
Investors will ask all of these questions, and more, when evaluating the opportunity you’re providing. Being prepared to make the case for your business can make all the difference in securing new investment.
2. Be A Disrupter: Innovate Away Competition
Venture capitalists, angel investors, commercial lenders, and basically anyone in small business financing are intrigued by three things: profitability, filling a market need, and innovative product offerings. While profitability is something that you can show in a financial statement, losses can be overlooked if you are able to show that you have a unique, original market offering that innovates within your sector and has the potential to gain traction in the near future.
Innovative product offerings are a great sign that your business will succeed and become profitable in a crowd of competitors and will mitigate any risk perceived by an investor. Showing an ability to innovate and to fill a need in the marketplace is a key when looking to raise capital for your business.
You are not the only businesses looking for investment and in order to sway investors away from your competition and get them to sign their checks in your favor, you have to differentiate yourself from other small businesses like yours. Look for ways to position your product or service for an under-served market, brand yourself as an innovator within your sector, or leverage digital tools and technologies to get ahead. Innovation strategies vary depending on the nature of your venture but making sustained efforts to differentiate yourself from your competition and innovate will keep investors interested.
3. Tap Into the Digital World
While it may seem like your only options are to secure a bank loan, look to trusted family and friends for cash, or open a new business credit card, the digital world has made finding investment for small business owners much more accessible.
Utilizing business-facing social media platforms like LinkedIn is a great way to network and broadcast your search for small business investors. There are lots of LinkedIn users looking to make equity investments or small business loans given the right opportunity. Sell yourself on investing forums, reach out to known small business venture capitalists, and make it known to your networks that you have an exciting investment opportunity available. Putting yourself out there gets you the investment radar and can help you find the right investors for your small business.
Many online platforms are available that facilitate both angel investing and crowdfunding for businesses and investors of all levels. Websites like CrowdCube, Gust Angel Investment, and AngelList are all examples of platforms that make it easier to find people willing to fund your venture. Crowdfunding sites like Kickstarter, LendingClub, and Crowdfunder are other great options to extend your reach and can help preserve equity by instead getting debt for your business.
There’s also a burgeoning market of debt capital lending fintechs available to small-to-medium sized businesses. Firms like C2FO, Fundera, Fundbox, and Biz2Credit (that’s us!) are providing innovative financing solutions to free up working capital, optimize cash flow, and provide equity preserving debt capital to small business owners.
4. Leverage Your Community and Government Programs
There are also plenty of options provided by your local communities and government agencies that can help you secure funding.
Small Business Development Centers (SBDCs) are partnerships between local Universities, private businesses, and government agencies that exist to help local business owners. They can help you find the right types of investors and type of investment for your business’s needs for free or for a very low cost. Their programs will help with optimizing your business model, developing pitch decks, and identifying investors for small businesses.
Your local Chamber of Commerce, or ones in nearby cities or towns, is another great place to network. Here you can find business owners like you who may have leads to new investors or who may be investors themselves looking for a new opportunity. Stay active through these channels to keep you and your business relevant to potential investors.
Look into nearby incubators that specialize in small business investment schemes. These competitive programs immerse you into the upper echelon of the local business world, help with business development, and put you in contact with their network of private investors eager to fund the next big thing. If you can secure a spot, this can be a great way to kick start an early-stage small business.
Additionally, the Small Business Administration (SBA) guarantees financing in the form of loans for small businesses through their network of certified lenders. Funding through the SBA often has lower interest rates and more agreeable terms, which minimizes debt and maximizes the impact of any commercial loan. This can be a great equity-saving alternative to adding a new investor while still providing needed cash.