Getting money for your business is one of the biggest concerns of entrepreneurs, especially newbies. The fact is that obtaining funds or investors is a challenging task. Therefore if you are looking for sources of capital, take note of these strategies to position your project as a good investment:
1. Know What Investors Want
Look at three things: the people behind the idea, the idea itself, and the answer to the question “When will I get my return on investment (ROI)?”.
Many concepts fail to get funding because they have a great team, but not a good idea Or they have a great idea, but the team is not capable of performing it, or simply because they do not know when and how to generate the ROI.
If you have what investors are looking for, that means that you also have a right Business Plan that includes cash flows, specific projections of the return on investment, and a real understanding of the market in which you will be inserted.
2. How to Act in Front of An Investor
Before finding a good investor, we have to be very clear about how we are going to “sell” our project so that someone wants to invest in it. We must transmit confidence ourselves, that we believe in our idea one hundred per cent. It is of utmost importance that when we talk about the project, we are sure that it is a good idea and that it will work.
Investors usually focus on three things; the concept of the entrepreneur, the people or team behind the project, and depending on the project, the time they have to recover the investment.
The problem sometimes is that it is very tough to maintain these three qualities at the same time since commonly when you have one, you lack the other. We find situations where there is a good idea, but the team is not suitable to develop it and others in which the team is perfect, but the idea lacks potential. Even so, it is feasible to find an investor.
To achieve this, it’s far essential to have a clear idea and believe to “sell” it in the best possible way, choose a good work team and be clear about the investment. We need to be able to estimate when the investment can be returned.
3. Online Fundraising Platforms (Crowdfunding)
This method of financing is relatively modern and has been very successful. The process is quite simple. You choose your crowdfunding web platform, you submit your project, and you collect contracts for 90 days (therefore not cashed). In the long term, if you have reached your goal, the donations are then harvested.
Contributors are people like you and me, who participate because they believe in the project. It’s accessible to the entire web community, so you can reach out internationally, not just locally. Platforms such as Kickstarter or Seedrs can help you contact investors.
By using crowdfunding, you also build your brand identity, which is an additional benefit for the future. The people you contact can then become potential customers. The return on investment can take different forms:
- Participation in profits on turnover: The investors obtain an absolute advantage according to the turnover.
- Donations and rewards: Investors can donate or receive an award such as concert tickets, gifts, etc.
- Shares: Investors receive shares in the company, which can provide them with the gain on a possible sale or an IPO with the payment of dividends.
- Loans: Investors lend you an amount that you will have to repay within a predetermined period.
4. Angels And Dragons (Venture Capital)
If you have a large and innovative project, the Angels and the Dragons may be for you. Indeed, there are investors in New Delhi ready to invest in your business in money, advice, networking, and much more, in exchange for shares in your business. So your entire business is no longer yours. The benefits of this kind of financing are that success is practically guaranteed. Not only because you have the funds, but also because you now have an experienced associate and also network.
You must prepare your business plan well; your financial statements will be scrutinized, due diligence (especially the part of the growth of income and profits!) and prepare your sales pitch well. You only have one chance to convince them.
5. Government Loans And Grants
The government likes to stimulate entrepreneurship because it is small businesses that keep the economy going! And if you are starting a business, well, you are not unemployed! Also, your business will create jobs and pay taxes! By doing the math, the government gains a lot by investing in you. It is instead a win-win. You need to prepare your business plan and have patience, and it’s still government!
Anyway, in India, the government has implemented many schemes, especially for those who want to start their business. You can take full benefit of this opportunity without any tension because you will get more trustworthy investors as the government.
6. Loan From A Banking Institution
Financial institutions are a little more cautious when it comes to starting a business. They require a lot of evidence and guarantees to be sure that the loan will be repaid. You have to understand them, the failure rate of business start-ups is very high! Prepare your financial statements, business plan, and budget forecasts.
7. Bootstrapping (Self-Financing)
This method of financing is my favourite. You make your arrangements, and you don’t have to report to anyone. No balance sheet, justifications, and expectations. The companies I have seen bootstrapping have almost all been successful and have proven to be the ones that have endured over time! It is not the most natural way, I agree, but it is the simplest in all respects. If you can start saving by starting your project, I highly recommend it.
8. Funds By Loved Ones.
Love Money is money that your loved ones lend or give you. Again this is very practical because you do not have too many accounts to repay. And often, when starting a business, they like to help us. The small warning here: even if they are your loved ones, make a contract between you. This contract must include the terms of your agreement and the repayment period. This contract is useful in several ways because it protects your loved one and protects you too.
9. Be Persistent And Prevent Blows
“Potential investors initially refused Google almost 150 times,” says Benjamin du Haÿs. Moral of the story? “Be tenacious”. See a hundred other suitors, if necessary. Find the one who will trust you, the others will follow, ”he advises.
Before going to consult a first venture capitalist, Mobeewave (A Payment Platform ) had the chance to be able to count on a few financial angels. An avenue that you could consider. “The fact of being accompanied in your efforts by a person who masters venture capital is also an undeniable advantage,” he adds.
10. Financial Statements
An investor will analyze a company’s financial statements to diagnose its financial health. It will perform a calculation of several types of ratios, notably concerning liquidity, profitability, management as well as that of the economic structure of the company. Also, the debt coverage ratio will be particularly taken into account.
These ratios will then be compared to those of the industry in which the company operates. This could, for example, have a favourable debt ratio, but too low if we compare it with its industry.
That said, a ratio that cannot be compared with those of its industry will have no meaning.
One more thing…
What does a winning funding package look like?
Take the example of a franchise that was recently funded. Let’s say the founders have comprehensive business and marketing plans, a team, a concept that has proven to be locally successful, samples of decor materials, ROI and cost projections, and a legal overview of risks. Is this a guarantee of success? No.
You can have all of this in order and still not have a winning financial package. If you approach 20 investors and the 20 say ‘no’, then perhaps it is time for you to go back and review your concept. Keep in mind that you could review 50 ideas before coming up with a profitable model that will make everyone profit.