Securing investment for your business can be a daunting task. You want to make sure that you retain a majority stake in your company and maintain some control over its day-to-day operations. There are a few different ways to do this, so read on for tips on how to keep your business yours while securing the investment you need.
Why do businesses need investors?
Unless a business is well established, traditional sources like banks do not lend capital to the business. This is especially true for startups. In these cases it is necessary to seek out investors to fund your business.
Many a times, even if a business is doing well, it might need extra cash to scale up its operations or take advantage of a new opportunity. And, having outside investors can also bring in fresh perspectives and new networks that can help a business grow.
What do investors look for?
Investors look for business that has a sound strategy and is likely to be profitable. They'll also want to assess the risks involved in investing, and look at things like the company's financial history and the strength of its management team. Investors also want to make sure that their investment will give them a good return.
What can you do to make your business more attractive to investors?
Different types of investors look for different things in a company. There is no one size fits all prescription to make a business attractive to an investor. Irrestpective of the type of investors you will need to have a strong business plan that outlines how you're going to make money and grow the company.
A management team that has the skills and experience to execute your plans is another factor in getting investment. The team plays a very big role in building confidence in the investors. Some investors look for the right team and prioritise it over the business plan.
For startups it is difficult to show a track record of revenue or profitablity. Even then, you should create a financial plan and projection to help the investors understand how they will get returns on their investment. Also, it is important to show how you will use the capital the investor infuses into the company.
Having competitive advantage in the form of exclusivity to a market makes your business an easy choise for the investors. Competitive advantage may be in the form of patent protected unique technological advancement, copyright protected software, exclusive licenses and persmissions to operate in a territory etc.
Intellectual property rights like patents, copyrights, and trademarks make the business even more valuable. Since these are assets with their own inherent value, they add to the business' balance sheet and increase the overall value of the business.
What are the different types of investors out there?
There are a few different types of investors out there, and each one has its own set of priorities when it comes to investing.
Venture capitalists are usually looking for high-growth businesses that have the potential to make a lot of money. They're willing to take on more risk than other types of investors, and as such, they usually want a higher return on their investment.
Private equity firms tend to invest in more established businesses that are looking to expand. They're often willing to provide more hands-on assistance than venture capitalists, and as such, they usually want a smaller return on their investment.
Angel investors are usually individuals who are looking to invest in early-stage businesses. They're often willing to take on more risk than other types of investors, and as such, they usually want a higher return on their investment.
Family offices are private wealth management firms that invest on behalf of ultra-wealthy families.
And finally, sovereign wealth funds are government-owned investment vehicles that invest in businesses and assets around the world. Eg: Uber the car hire company secured $3.5 billion in funding from the Saudi Arabia soverign fund.
How do you find the right investor for your business?
Different businesses will have different needs when it comes to finding investors. Early-stage businesses will need to look for angel investors or venture capitalists, while more established businesses will need to look for private equity firms. The best way to find the right investor for your business is to know what you're looking for and doing some research into potential investors. You can also reach out to your networks and see if anyone can introduce you to potential investors. Finally, you can use online platforms like AngelList or Crunchbase to find investors who might be interested in your business.
How can you protect yourself and your business if things go wrong with an investor?
Sometimes investments don't work are intended. It can lead to friction between the founders and the investors. In such situation it is important to have a written agreement in place that outlines the terms of the deal. This will help to protect you if things go wrong.
Make sure that you have a good understanding of the different types of investors out there and what they're looking for.
And be prepared to walk away from the deal if it's not right for you.
Remember, taking investment is not just about the money, it also about the long term relationship you will have to maintain with the investors.
Conclusion
When you're looking for ways to raise capital for your business, it's important to weigh up the pros and cons of each option. Giving up equity in your company can be a risky move, but it can also bring in fresh perspectives and networks from the investors. If you're not comfortable with this, there are other options available to you. With careful planning and a bit of creative thinking, you can get the funding you need without giving up control of your business.