Looking to Raise Money for Your Brand? Here’s What You Need to Know!
So you need money for your business! Great, and so do a lot of other businesses. But why do you need this funding? Knowing the answer to that question will point you in the right direction to find the ideal funding route for you.
Do you have a great idea but nothing to show for it yet? Grants, friends and families would be the place to start. Do you have a product but you need to start selling it? Then there might be an angel investor around who can bolster the previous options. Are you running a profitable business that needs funding to expand? Now, the options are starting to grow including traditional lenders, such as banks, venture capitalists, maybe even some private equity if you’re large enough. But let's start at the smaller scale.
You have a great idea, there is an eager market for your product and fortunes await you.
Grants
Now you need to turn your idea into reality but you don’t have enough money in your own bank account to make it happen. When looking for funding, the best sort of money is free money. You might just be able to get your hands on some of that free money through government or industry grants. Grants are awarded on criteria such as your age, where your business is located, what sort of industry you’re in etc. The best thing about grants is that you don’t have to pay them back. There might be some small strings attached to the funds but they shouldn’t be onerous. Best of all with grants is that they’re actively looking to give the money away. A quick web search will bring up what options are available to you and how to apply.
Family and Friends
If you’ve looked into grants but still don’t have enough to get started it might be time to approach your friends and family. When having these discussions, being upfront and honest is key, as you probably want to remain on talking terms with them. You will need to acknowledge to your friendly potential investor that most start-ups fail. There’s a very good chance they will not be getting their money back and being open about that fact at the beginning is important. Next, the two of you will need to determine what is their upside to the investment? If things go well will they double their money? Do you want to give away equity at this early point? It's best to have all of these questions answered before you accept any money to avoid uncomfortable conversations later when things aren’t going swimmingly! These conversations can be difficult, even if the business is doing well, if everything wasn’t agreed upon at the beginning.
Now let's say that you are a bit further along and have more than just an idea.
There’s a product that you can hold in your hand and you even have some stock you’re ready to sell. Where do you get the funds to finance a production run or start marketing? Friends and family are still a likely source of this funding, as are grants. Remember, always check for grants first! But there is a new type of investor that might be available to you called an angel.
Angel Investors
Angel investors are individuals who have capital to invest in early stage ventures. However, any cheques that they write will come with serious strings attached. Their money will most likely be a convertible note. While it might look like a loan, their hope is that the business succeeds which will mean the loan disappears and they will receive equity, a portion of your business, instead. There is a lot more nuance to this type of transaction but in basic terms it's about quick access to funds for the price of equity. Beyond providing capital, angel investors might be able mentor you or at least provide further industry contacts.
Finding an angel investor is a bit more difficult than discovering which grants are available to you. While a web search might find some who are active in your space, getting their attention can be difficult. At this point you will need to be prepared with a pitch deck showing why your business is worthy of investment. The key questions that should be answered in your pitch include:
What is unique about your idea?
How are you going to bring that idea to life with the investor’s funds?
What will the return on their investment be?
Be aware that angel investors review hundreds of pitches for every investment they make, so temper your expectations and be persistent in looking for the right investor for you. When investing in early businesses, like yours, the angel investor will also be looking at your potential as the founder along with your business idea.
You now have a profitable business. You’re making products that sell and people are loving them. But it could be time to grow for numerous reasons.
Maybe you want to expand into retail stores, start selling overseas or you’re ready to increase your product offerings. At this point in your journey there are more places to find funding and each come with their own set of pros and cons.
Your Bank
The first place to start is with your bank. You already have an existing relationship with them and they understand your business.The bank might be in position to offer you a loan, a line of credit or an overdraft facility based on your relationship. You will have to pay interest on any funds borrowed but you will not give away any equity in your business. Raising debt is cheaper in the long run than selling equity. However, the bank might consider a loan to your small business a bit too risky for them.
Venture Capital & Private Equity Firms
There are other businesses who will tolerate higher risk. However, they need to be rewarded in line with that increased risk. These companies, such as venture capital or private equity firms, purchase a portion of your company with the expectation that those funds will be put towards whatever your growth strategy is. Beyond selling a portion of your company, the new investor will also want some sort of control of the business either through special voting rights for their shares or even a board seat. While you are giving up a lot, a portion of your company and some of your control over it, you should be gaining more than just access to capital. A good venture capital or private equity firm will provide advice, contacts, help you navigate further expansion or even the complete sale of your company. Such partnerships should not be entered lightly and definitely not just for the funding.
In Conclusion
There are many things to consider when looking to raise capital. Starting with what the capital will be used for and what cost you are willing to bear will help determine your starting point.
Another key point to remember is that depending on the source of funding you can expect some form of partnership beyond just a financial transaction. Even with grants, the awarding body will have a host of resources available to a small business.
And if you’re selling a portion of your company, you will want to work with someone you could consider a true partner. Letting go of a part of your business is a serious decision.
Ambitious growth often requires resources beyond what you have on hand but by giving something away you might end up with a lot more in return.