There comes a point in nearly every business’s life when getting funding is a necessity. At this fateful moment, there may also be a realization that a certifiably insane number of capital sources are out there. Most of these will not be a good fit, and each will have their set of strings, checklists and “arrangements” attached.
As a heroic business owner that just gets stuff done, you muster as much strength as you can and say “bring it” expecting you’ll get to the other side with cash in hand, alongside a moderately-understood agreement.
Maybe that will work out.. Or maybe there’s a landmine hidden in the pile of cash timed to go off at month 12, 36, or 60.
Have no fear! A little planning can go a long way in arranging an equitable deal and a reputable funding path.
Here’s a handful of questions to get the juices flowing:
Why am I raising money?
Basic, right? Don’t be fooled. If you plan on convincing others to give you money, you’re going to need specific goals for this specific stage of your business. “Because I have a great business idea” is not going to cut it. You may have a historically successful business, and need a bridge through a down period (COVID, anyone?). Maybe you’ve built a solid business and need resources to scale or expand your product line. You could be ready to “pull chips off the table” and want to see your options. Whatever the reason, know it and be prepared to talk about it.
What will I use the money for?
One layer deeper from your “why” is your use of funds. Specifically, how will you deploy the capital raised to meet your goal? This could be new equipment, hiring salespeople, ramping up marketing, or investing in technology. Answers to this question can vary widely, but having a plan you can strongly defend is a must.
Where will my company be after I use these funds?
Sustainable profitability! (as the clouds part to the accompaniment of an angelic chorus). Well done. Or maybe the plan is working and you’re looking to grow faster. Or nothing worked and you’re in a hole (probably not. But maybe).
What will lenders/investors want from me?
Enter “The terms”. This is your own personal dance with the market rate. What level of reward is required for the risk your capital backers are taking? What value have you created so far and what is the future potential? If these questions sound impossible to answer, you’re not alone. While putting a price tag on your work and your business is rarely an easy task, it is an important one. It doesn’t have to be every person’s cup of tea, but you must have terms (e.g. security type, target return and expected timeline) that can get you in front of potential investors.
Am I willing to give them what they want?
If you’ve figured out what investors want, that’s half the battle. There is the obvious target return, but don’t discount the mission and vision of what you’re doing. Many investors back concepts and causes they believe in, not just to get a paycheck. With a little research and a few questions you can usually figure out a potential investor’s thesis and what they’re interested in backing. If you’re willing to give them what they want, then eureka! We have a match.
Not all capital is created equal. Getting funding creates a new business partnership, and trust is foundational between partners. Make sure you ask the right questions before you take on outside dollars. Your funding arrangement can be jet fuel in the tank or a tether to the launchpad. Choose wisely!