How To Raise Capital For A Startup
Raising capital for your startup is a challenge, but crucial for your business to get off the ground. Here is our guide on how to effectively raise capital and funding for your small business.
Financial capital is quintessential to getting your startup off the ground. In fact, it is the most important job of a business owner or CEO. Raising capital is a key component that you have to be vigilant with regardless of the size or success of your company, as business growth is highly reliant on capital.
Raising capital for your small business or startup is no easy feat. To gear up for the rocky road ahead, here is a guide to how to raise funding and capital for your business.
Capital through loans
Raising financial capital, in simpler terms, is to mean raising funding for your business. There are many approaches to funding but, broadly speaking, it can be divided into two categories — through loans, which have to be paid back at a later date, or through investment. While reaching out to a bank may be the most obvious choice for funding, there are alternatives you should also consider.
Peer-to-peer funding
Peer-to-peer funding, also known as crowdfunding, is usually done between individuals on a trusted online platform. This involves individuals who are happy to lend their money for business ventures on the condition it is paid back with an agreed interest rate.
Peer-to-peer funding is great for small businesses and startups who may not necessarily qualify for traditional methods of capital i.e. bank loans. As it’s done on an individual basis, many aspects of the loan can be negotiated — such as the timeframe of repayment and even the interest rate.
Seller financing
Seller financing is a unique method of funding generally found through business acquisition. The seller will loan additional funds to the buyer at an agreed interest rate, which is repaid over an agreed time period. To ensure the security of both the buyer and seller, the whole process is negotiated and the conditions are agreed upon in a shareholder’s agreement. Buyers can also ask sellers to loan money on top of the deal agreement. This can be beneficial as the seller will have opportunities to invest their money and it can quicken up the process (as there is no third-party lender involved).
Capital through investment
The other form of funding is through investment. This is when you sell equity shares to investors and, in return, they get a certain level of control over your company. They own a fraction of your company and are, therefore, involved in the business’s growth on an executive level.
Angel investors
Angel investors are often sourced through close connections, such as family and friends, and will provide a large one-time investment to help the business get started. They are high net-worth individuals who are sought after as it is a more appealing source of funding for startups and establishes a great platform for growth.
Venture capitalist
Venture capitalists differ from angel investors in that they don’t usually come from your close circles, and are focused on providing capital to businesses with high growth potential.
Ths source of funding is great for startups and other businesses looking to scale or expand. As this method of investing comes with high risk, it can be difficult to receive funding this way. However, with good pitching and negotiation skills, you might be able to land a great deal.
Tips & tricks when looking for investors
Raising capital for your business can be tricky, no matter what stage your company is at. While there’s no denying it is very competitive, here is some key advice that’ll give you an advantage.
Don’t put your eggs all in one basket
Plan to contact at least a hundred investors — but be prepared to only get a serious response from about five of them. The market is heavily saturated with other startups who are also looking to lift their business off the ground, so the hunt for funding is extremely competitive. Give your best shot with each of them and make sure to be ready with a foolproof pitch, but also always brace yourself for possible rejection.
Build a strong pitch
There are two very important things when planning your pitch. One is passion, and the other is direction. Remember the reason that drove you to start your business, and make sure to maintain that fire every time you present your pitch. Investors love passion and when they’re able to be as excited about your venture as you are.
There are then two directions you can go when planning your pitch. The first is through metrics — will you be showcasing data and forecasting to reflect high growth potential? Or will you be presenting the ‘big vision?’ Through your pitch, you can narrate how your industry or even the larger society will benefit from your business’s goods and/ or services. Either way, you need to remember that the overall goal of your pitch is to prove to investors that your business is worth investing in.
Always follow up
The magic trick is to follow up with investors no more than three times within no more than a three-week period. A business partner is great for splitting this responsibility, ensuring you’re following up with your investors quickly and consistently.
Work on networking
Good networking is a crucial skill when raising capital for your business. Strengthening your relationship with investors is especially critical when you’re raising funding in the early stages.
While traditional face-to-face networking is important, there are alternatives for relationship building if you’re not quite a people person. For example, you can keep them engaged with a monthly newsletter or even an active social media feed. No matter how you approach it, it’s crucial to always maintain relationships with your investors and others involved in the growth of your company.
Raising the chances for investment success
There are a lot of factors that come into play when landing the dream investment deal. Not only do you have to nurture your investor relations and create an invincible pitch, but you also have to make sure you’re focusing on the right investors and making the right decisions for your company. This is when a business accountant can come into play. Wilkinson Accounting Solutions is a business accounting and consultancy firm that provides first-class accounting services, especially for startups and small businesses. Our professional accountants can provide reliable advice and business insight that’ll raise your chances for investment success. Get in touch with us today to find out how.
