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4 key tips for how to get funding to grow your business

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Do you have significant growth plans for your business? Do you want funding to help achieve this growth? Issuing shares to investors is one clear path to raise capital for your business. Obtaining the first round of funding for a private company can be time consuming and challenging.

The past 18 months have been an undeniably difficult time for businesses everywhere. However, money continues to flow, and CNBC have highlighted the incredible year that has been for SPACS and IPOs, raising over $120bn for new business between them. It seems that the public and the business community at large have a vested interest in seeing new and/or small business succeed, and that’s reflected in the huge sums being invested across America. Small business owners may be wondering just how they can get involved and help their business grow.

A popular way to gain funding is to approach venture capitalist firms. Research has shown, however, that venture capital is not equally distributed between male and female run businesses. A recent study by PricewaterhouseCoopers and the National Venture Capital Associate in the United States found that of the approximately $48 billion venture capitalists invested in 2014, only 7 percent was invested in women-led businesses.

We examine the growing trend of women-oriented venture capitalists and look at the best ways to secure funding for a woman-led business. Here are 4 key tips for how to get funding to grow your business.

Angel, Venture Capitalist – what’s the difference?

Different types of investors invest at different stages of a company’s life cycle. You will make the best use of your time, and that of potential investors, if you research:

  1. What types of industry and businesses the investor invests in;
  2. How much the investor usually invests; and
  3. What sized business and at what stage of the business lifecycle.

It is neither easy — nor helpful — to have someone who is unfamiliar with your business write a cheque to invest.

Angel investors

Angel investors are high net worth individuals who often invest in familiar industries. Consequently, they understand the risks and can add value with insight for the management team.

For example, angel investors often deliberately choose the high risk, high reward nature of an early stage investment. They may choose to invest at an early stage when the company has a low valuation. They usually manage their risk by only investing a small percentage of their overall wealth in any one new business. An angel investor may, for example, choose to only invest in new high growth companies. They may invest a maximum of $200,000 per company, only invest if others also invest, and only invest while the company is valued at $5 million or less.

There are established groups of angel investors in many cities around the world. In Australia, Sydney Angels is a group of high net wealth business people who invest in high growth companies. Members interested in investing in a company form a syndicate. They collaborate to complete due diligence, individually and collectively assessing the quality and the deal’s potential return on investment.

Another angel investor group is Scale Investors, many of whom are high net wealth women. Scale Investors generally look for a ‘scalable’ product that has marketable features and a business model that can generate at least $20 m revenue in the first five years, as well as a female founder or woman executive.

Venture Capital

The most traditional form of investing is through venture capital, which procures an amount of equity within a business in exchange for shares and participation in onwards growth. The rate of investment into new and small business has not abated in terms of these means. TechCrunch found that, throughout 2020, an average of $428m was fed into US-based startups every single day. Even for businesses uncomfortable or inexperienced in the VC world, crowd funding is making a big impact.
Venture capital firms have investment funds (generally $10 million or more per fund) as well as clear investment guidelines and parameters for each fund.

A venture capital fund may, for example, only consider a company which has a strong track record and a history of significant growth, that is already valued at over $10 million, and that has clear potential for global impact in a particular industry.

Crowdfunding for equity

Crowd-sourced investment has two main forms. The one most akin to modern business, where buyers are able to purchase equity or some form of stake in the business – whether that be through input into operations or through dividends – saw a surge in 2020. Platforms are increasing in number and quality every month to help source this, and as US News highlights, real estate is one area in which investment has really seen an overhaul. Hordes of small investors now have a real say into the oldest and perhaps most consistently lucrative market.

Benevolent backers

The other form of crowdfunding, done as an act of goodwill or through brand loyalty, has also seen a huge increase in interest. The public, with more spending money in their pocket due to a restrictions on where they can spend it, has turned their hand to helping businesses to stay afloat – typically as a thank-you for the years of service they have received. This has offered a legitimate way for businesses to stay afloat, and was felt acutely in the comic book industry in early 2020, which has now used these funds to grow and aid their former consumers.
The outlook is good for small business. Investment is plentiful, and comes from from multiple avenues. 2021 and 2022 can be a period of growth, rather than shrinking, for business, and that’s only a good thing.

About Business Woman Media

Our women don’t want to settle for anything but the best. They understand that success is a journey involving personal growth, savvy optimism and the tenacity to be the best. We believe in pragmatism, having fun, hard-work and sharing inspiration. LinkedIn

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