There are a number of factors that a business owner needs to be aware of when they start the process of raising private capital. In addition to navigating the various channels that may provide funding for your business, you will need to have a clear plan and course of action charted out before implementing your private capital raising ventures.
The primary considerations include:
- The amount of capital needed to support business objectives
- The industry your business operates in
- Current economic climate
- Legal and regulatory issues that must be followed
Raising private capital often starts within your own networks. The first place we generally recommend a business owner go to to raise funds includes their family, friends, suppliers, co-workers and other established relationships.
Some business owners looking to raise capital ask their family and friends if they would like to invest, but they miss out on opportunities to expand this network by including employees who might be willing to invest in a piece of the business. Additionally creditors and suppliers with whom you work could be potential targets for investment, as they might be intrigued by the chance to align themselves closer with your business for growth and diversification potential.
Once the primary sources of raising private capital have been exhausted, savvy business owners will look to expand their existing network. This could include your competition, as there may be options to merge or adjacent businesses for which a natural expansion of products or services could ensue. Strategic partnerships with other companies can open up capital funding from new markets and expose your company to venture capitalists that you may not have reached before.
Aquire Business Investments
The third, and often most advanced, means of obtaining private funding requires significant investment from a business, but with the right plan it can really pay off. Companies often hire teams and run marketing campaigns designed specifically to help make the connection between the business and potential private capital funding.
Placement agents are one such investment, and have proven to be a great avenue for getting a seat at the table with potential investors. At this stage it is important to stay focused on cultivating the potential investor relationships that arise. Most investors want to know why the funding is needed more than they want to know about where you believe your investment will lead the business, although both are important considerations.
It is further recommended that the business create a social presence in order to relay the information that the business is established and working with professionals who bring value to the process and whom an investment in represents a sound option.
Your business may be lucky enough to have a choice of private capital offers; in these instances and arguably at any time a business seeks a private investor, it is important to define your ideal investor. You may already have something in mind such as a silent investor or one that will take an interest in the business and possibly help it to align with new or larger markets.
Opportunities can coexist between finding the right private capital and aligning with larger markets or merging with other businesses. This is why it is important to consider your first and second options carefully as they will already be the closest to understanding what your business does and why it needs the investment. In short, you would not need to explain as much or sell your idea in the same way, so this can be beneficial.
Understand Your Worth
It is important to understand why your investor wants to offer your business private capital – any number of reasons are acceptable, but it helps to define the relationship going forward and will stand to the greatest advantage of the business since there will not be any misunderstandings.
In order to take full advantage of the opportunity the business needs to show that they are fully compliant in all ways:
- regulatory or tax implications should always be complied with in order to show potential investors that an investment in your business represents a secure option.
- Being able to define your business in the right terms will help gain interest, so bear a thought to how your business is being marketed and focus on the strengths.
Using contemporary options for sourcing private capital also means focusing on technology and online communication as well as networking. Creating a business profile, maintaining a website and running a blog on related topics of interest to the business will help the message spread and become inherent in what a potential investor will think of when they think of your brand.
In summary, if you are considering sourcing private capital for your business, make sure that you explore all options. Take the time to lay the groundwork which has historically been shown to create stability and strong brand recognition. Take care to define your business motivation and growth opportunity but be sure to concentrate on the accounting aspect of what you plan to offer the investor for his or her money.
Making A Plan
Any potential investor will want to see a plan of action for the use of the investment as well as any repayment or dividend offers that they will gain. Understanding the bottom line in all areas, both in where your business now stands as well as post investment projections will be a necessity, so it is better to have them ready before trying to find an investor.
When you know you have a solid plan of action together and that the business is fully compliant and wholly representative of a sound investment choice, then consider your options for finding the right investors, bearing in mind which type of investor you feel would be more suited to the opportunity.
And remember, your business is an opportunity for someone – sell your business and the advantages that any investor will gain through being associated at this point in time. Showing that the business is positioned for growth in the future is an attractive scenario for investors, who do not look at investments as support for a business, but rather as a way of earning money by simply being involved in the right opportunity.