This idea has been at the back of your mind for the past eight months or so. You still have a full-time job, but you’re contemplating on launching your own business. Not all the fine prints are there, but the general concept is already well thought out. You’re looking at banks that could give out an SME loan, but you haven’t selected a specific one yet.
Fortunately, a friend who works for a venture capitalist company is visiting from Singapore. You’ve been bouncing off ideas on him. You mentioned that one of your primary concerns is trying to raise capital. Your friend was more than willing enough to walk you through with some of the options.
Here are some ideas on raising capital that he might have shared with you:
An Overview of Capital Raising
The estimate is that 73% of new small enterprises needed financing in some form or another. This has always been the main stumbling block for small entrepreneurs. They save up some money or ask from family and friends. But when it comes to writing down the business plan and the financials, they would still come up short for capitalization.
Your friend from Singapore would have told you not to fret as there are various channels that you can explore.
Talking Your Way Through
Going to a bank and asking for a loan is undoubtedly one of the ways to raise capital for your business. Each bank would have its set of requirements, from the equity you’re willing to put into the business plan that contains details of your financial projection. Here are more ideas for raising capital:
- Team and problem-solving product. It’s not only about the excellent elevator pitch that explains what your product is all about. Funders are also looking at the capability, expertise, and experience of your team. If you’re able to put this message across, then it’s likely that they will listen to you. Your product must also be responding to a need or solving an existing problem. It’s a technical capability, and the fancy feature will be worthless if it doesn’t offer anything unique.
- Data is king. With data science and data analytics almost at the forefront of any business initiative, your talking points must illustrate the market impact and profitability of your product. What’s the projected number of customers? How much will customers pay for big contracts? All these and more, you must be able to communicate to potential funders.
- Crowdfunding. The tricky part about crowdfunding is that you are making a promise, or at least that’s one model. You are selling at discounted prices products that you have yet to develop and promises to deliver first to customers/funders once the product is completed. The problem with this model is that delays will make the investors uneasy if not annoyed. Another model is a straight-up investment from crowd funders. These funders will rely heavily on your compelling story before parting ways with their money.
- Angel investors and venture capitalists. Technically, angel investors must have an annual income greater than $200,000. They will give you money without the requirement of interfering in your day-to-day operation, but they will scrutinize your business plan before they give money. Venture capitalists are attracted to more established businesses, who are looking to expand their operation. Like angel investors, they would be even more strict with your financial calculations, the return of investment, and market reaction.
You can ask friends and relatives for support. They’re like semi-angel investors—willing to commit, with zero to minimal requirements. The road ahead can be daunting, but these four things will set you on the right path.