Starting and growing your business requires capital – money. Here are some tips on how to attract start-up capital and what your investor will most likely expect in return.
Perhaps you’ve been able to secure some start-up money under your own steam or you’re willing to work 24/7 and sacrifice your work/life balance. Maybe you have friends or family who believe in you, or you can persuade the banks to fund you. Leaving aside these options and crowdfunding – which is a bit of a wild card – you’ll probably be seeking seed-funding from Angel Investors, Venture Capitalists or Private Equity firms.
So, what does any of that mean?
What is capital funding and how do you attract it?
Seed funding is essentially what it says on the 'tin': money to help things grow.
And anyone who has seen at least one episode of the TV series “Shark Tank” will know that means pitching to potential investors about who you are, what your business idea is, and why it would be an attractive investment. This isn’t going to take place in a television studio though… instead you’ll need a pitch document that clearly details your plan, which you’ll need to present to potential investment firms.
If you don’t have a corporate background, then you may need help constructing a pitch document and knowing where to shop it around. And be prepared for rejection – the majority get turned down. Learn from the experience – ask why? – and bounce back with a better pitch.
As Sunroom co-founder Michelle Battersby said in an interview with the Australian Financial Review: “You present yourself well: reveal your life story, how you got here, what you hope to make of your life and then finally – you get ghosted!”
Most important of all, how you present your plan needs clarity and to be succinct. Investors want to cut to the chase.
The upside and downside of a successful pitch
If you find an investor, then your worries are over? Not quite.
Investors want something in return for their money. In this case, it’s a stake in your business at the very least. An Angel Investor will not only invest but may also become a mentor and offer advice. Often, they will come from a similar industry to yourself and have a genuine interest in your business.
Venture Capitalists will probably be looking for a return on their financial investment and a seat at your table to make sure they get it. It’s worth thinking about who you take money from, as you’re potentially entering a long-term partnership with all that may entail.
Worth mentioning here is that Private Equity firms tend to concentrate on businesses that have already matured to some degree and want to expand rather than start-ups. This may not be the pond in which a budding entrepreneur wants to fish.
Raising capital is just the beginning
One more word of caution: raising capital is a sign of agreed potential, not of success.
You enter the deal. Your investor electronically transfers the cash (the symbolic days of writing cheques are long gone), and away you go. Hire people, buy equipment, market and sell products and services, and grow, grow, grow.
Your lender is now your shareholder with a stake in the company and an eye on what you're doing. They may offer advice - whether you want it or not – and they will expect to see a return on investment (ROI). Here is where the rubber needs to hit the road. You need to turn their money into a business.
So, be sure to know what you want from potential investors and what you are happy to offer them in return. This is the balancing act that needs to be maintained.
Reasons for optimism as a woman in business
There is a huge silver lining for female entrepreneurs, and for the investors who might back them: research has found that women are a better bet than their male business owner counterparts.
The Boston Consulting Group and Mass Challenge, a non-profit organisation engaging with start-ups, found that female founders constantly outperform male-led companies in terms of ROI.
Female business leaders tended to be more solution-focused, and more motivated by purpose than money.