Have a business? Looking to raise capital? Here’s the truth – if your business plan is a risky one, then you know that to raise capital is something that’s easier said than done. Approach a bank, and you will find that most of them will not fund what they think is a risky proposition. Find an investor, and you might find him backing out because he is not sure if this is the opportunity that will earn high return on investments. Got a unique product or service, you’ll soon understand that contrary to belief, reaching out to your niche takes a lot of effort and money. If only you were able to raise capital – everything else would be a piece of cake. So here are a few sources you can tap into while looking for investors.
Option one of ways to raise capital is using your own savings or your credit cards. When you have money of your own, why look at external sources? But before you opt for this, make sure you have a good talk with subject matter experts, look into the long-term consequences, and decide which form of equity fund is the best way to raise capital. You could have savings, mutual funds, life insurance or credit cards (the last being the most risky funding option), so when you use the funds for your business venture you will need to understand which of the options have scope of bringing in better returns on investment.
When your own funding is not an option, there is another great way to raise capital – friends and relatives.
Though it may seem shameful to ask them for finances, it seems to be quite a popular option because according to a survey it is the option of choice for 30% of entrepreneurs who are looking for ways to raise capital. If you decide to go this way for funding, you must have your attorney draw up a business contract because though you approach people you know for funds in an informal, non-business way, business is best done transparent, telling them how their investment will profit and ensuring that you will keep up your part of the agreement is the most professional way to do business.
RAISE CAPITAL – ANGEL INVESTORS
Private investors are another great way to raise capital. As people are interested in making money with their capital through non-traditional markets. These “angels” could be anyone – someone you know, your banker, your attorney, like-minded individuals, or an individuals who for the love of business, seek out new opportunities to invest in return for equity ownership. They can help you raise capital, give you guidance for start-ups, they could improve your ideas and mould your business, but they usually demand high returns for their investments.
RAISE CAPITAL – VENTURE CAPITAL
The next option for ways to raise capital are venture capitalists who provide funds to your company if your business can prove that it has a solid track record and a potential return on investment. Make sure you find a venture capital firm that has similar goals and ideals as yours. Ensure that you have a risk management plan, the foresight to predict where you see your company down the line, and do consider all possible contingencies.
Remember, if you are looking to raise capital through venture capitalists, they do not in start-up companies and they invest in people, not just companies.
A good place to look for while looking for ways to raise capital is your office – your own employees. If you have a committed workforce that really believes in the organisational goals, then you might even find an employee who would help you financing and become a potential investor. If your potential or current employee is likely to become your investor, you get a really committed workforce that is driven by reasons other than the salary.
RAISE CAPITAL – PUBLIC CAPITAL
Before going public with your company, you should consider all the possible risks while looking at ways to raise capital. Capital equity is more risky than any other type of funding. There are tons of legal points that surround this project, especially if it’s for budding business enterprises. If you are going to raise capital via public equity, understand that it involves a great amount of stress in terms of running the company and a considerable loss of control. The advice of a knowledgeable attorney is absolutely essential. It’s good to take a consultation before deciding on this option to raise capital, or discussing it while choosing the option.
RAISE CAPITAL – LOANS
Who do you turn to when there’s no one to turn to – Banks! Yes, as the least expensive route to get funds, banks are your answer on how to raise capital. With as less as 2 percent, doing business is easier than ever before. There is also a great deal of documentation and paperwork to be done. However, as an entrepreneur you will have to have a clean state credit history to get a loan. Different banks might have different parameters to offer loans. You have the choice of a secured loan or an unsecured loan – the difference being you having to pledge your assets Vs. you paying lesser interest. Alternatively, you could also look at money brokers who deal in circulation of funds between investors and entrepreneurs. Money brokers act as a bridge in financing and can almost always guarantee that you get the amount of money you want/need, for a percentage of the gross amount that is their fee. The retainer fee is always paid up-front, so be ready for that.
Once you find investors and you find your requisite funding, make sure you have a plan in place. Put down the terms and conditions with the help of an attorney. Prepare the future strategy for your business. Get a funding proposal drawn, if the funds aren’t your own. Also get a return on investment forecasted. To raise capital, you need to do a great amount of thinking. If you aren’t too sure with the legalities, ensure you seek advice from a qualified professional – someone who knows business, corporate laws, someone who is up-to-date with the recent changes, someone who understands the nitty-gritties of raising capital. Let’s face it, it takes a lot to lure investors to capitalize your business. Want to raise capital and be a success at it? Think things through and get the foresight of turning things to your advantage.