Growth is usually related to access to, and conservation of money while maximising profitable business. Folk often see venture capital as the magic bullet to mend everything, but it is not. Owners have to have a huge wish to grow and a willingness to give up some possession or control. For many , not needing to lose control will make them a loose fit for venture capital. ( If you work this out early on you may save plenty of headaches ).
Remember, it’s not just about the money. From the point of view of a business owner, there is cash and smart money. Smart money means it includes experience, advice and often contacts and new sales opportunities . This helps the owner, and the investors grow the business.
Venture Capital is just a technique to fund a business and in fact it is one of the least common, yet most frequently debated. It may or may not be the right option for you ( a discussion with a corporate advisor might help you in deciding what is the right trail for you ).
Here’s a few other options to think about.
Your Own Money – many business are funded from the owner’s own savings, or from money drawn from equity in property. This is often the most simple money to access. Often an investor want to see some of the owner’s fund in the company (‘skin in the game’ ) before they’d consider investing.
Private Equity Funds – private Equity and Venture Capital are nearly the same, but with a touch different flavour. Venture Capital is the term used for an early stage company and private Equity for a later stage funding for further growth. There are specialists in each area and you will find different firms with their own criteria.
FF & F – Family, Friends and Fools. Those closer to the business and frequently not sophisticated investors. This type of money can come with more emotional luggage and interference ( as opposed to help ) from its suppliers, but might be the swiftest way to access smaller amounts of capital. Regularly multiple investors will make up the overall amount needed.
Angel Investors – The main business angels change from venture capitalists in their motives and level of participation. Regularly angels are far more involved in the business, providing continuing mentorship and recommendation based primarily on experience in a specific industry. For that reason, matching angels and owners is imperative. There are serious simply locatable networks of angels. Pitching to them is no less demanding than to a venture capitalist as they still review masses of suggestions and accept only a few. Often the demands around exit methods are different for an angel and they’re satisfied with a slightly longer term investment ( say 5-7 years compared to 3-4 for a venture capitalist ).
Bootstrapping – growing organically through reinvesting profits. No external capital injected.
Banks – banks will lend cash, but are far more concerned about your assets than your business. Expect to personally guarantee everything.
Leases – this may be a method to fund particular purchases that permit for expansion. They’ll usually be leases over assets, and secured by those assets. Often it is possible to lease consultant appliances that a bank would not lend on.
Merger / Acquisition Strategy – you’ll try to acquire or be purchased. Typically even a merger has a more robust and a weaker partner. Mixing the resources of two or more firms can be a trail to growth – and when it is done with a company in the same business, can make plenty of sense – on paper at least. Many coalitions suffer with differences in culture and unforeseen resentments that can kill the benefits.
Inventory Financing – expert lenders will lend money against inventory you own. This should be more expensive than a bank, but might permit you to access funds you could not have otherwise.
Accounts Receivable Financing / Factoring – again an expert area of lending that will allow you to tap into a source of funds you didn’t know you had.
IPO – this is typically a strategy after some 1st capital raising and having proved a business is doable thru the development of a track record. In Australia there are various methods to’list’. They are useful for raising larger amounts of money ( $50m and up ) as the expenses can be pretty high ( $1m plus ).
MBO ( Management Buy Out ) – This tends to be a later stage methodology, instead of a startup funding methodology. In essence debt is raised to buy out the owners and investors. It is frequently a method to gain back control from outside investors, or when investors seek to divest themselves from the business.
One of the most vital things to remember across all of these techniques is that they all require a serious quantity of work in order to make them work – from the way the business is structured, to dealings with staff, providers and clients – have to be examined and groomed so they make the company interesting as an investment offer. This process of grooming and derisking can take anywhere from three months to a year. It is often costly both in actual costs ( specialists, legal help, accounting recommendation ) as well as changing the focus of the owners from’sticking to the knitting’ and earning in the business to attention on how the business presents itself.
The Venture Capital Centre works alongside businesses at all stages of their evolution through company and business advisory and can aid companies with raising venture capital.
companies that are seeking capital for growth in their organisation can be assured with access to our sophisticated investors, venture capitalists and private equity.
Article Source: EzineArticles.com – Venture Capital Articles
For more information on raising capital visit the Venture Capital Centre at www.VentureCapitalCentre.com.au
Additional Resources:
Venture Capital Alternatives For Startup Businesses
Lessons From Guy Kawasaki On Raising Capital
Financial Modelling For Growth Capital
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