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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.

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

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.

Think Long Term

Early stage investors know that your business is likely to raise other rounds of capital and that an exit by way of a sale of your business or an initial public offering is unlikely for at least several years.

Many entrepreneurs have stated that it is important to find investors you can connect with and can develop a strong personal relationship with. Ensuring your investors trust you is one of the best ways to secure a long-term relationship.

They will want to see how you handle challenges, mistakes, market issues, product issues, people issues and other ups and downs. Build on your relationship with your investor over time and prove that your business was the right risk to take.

You should identify clear goals and how you intend to achieve them, and then regularly update your investors. For example, if you have six months goals, provide an interim update, as well as a six-month update.

If and when you need more capital, clearly identify the goal, plan and likely outcome. You may be expanding internationally, or providing your service to a new industry, or acquiring competitors. Your original investors may reinvest and are likely to suggest other sources of capital or funding to achieve your goals. They succeed if your business succeeds.

Have Multiple Capital Sources

Targeting more than one possible investor, and more than one type of funding will increase your chances of raising capital. While angel investors are a common source of early stage funding, you could also consider government grants or a small loan.

Each source of capital provides different advantages and disadvantages. While it may take more work and effort, in the long term it may be beneficial to your business overall to have multiple sources of funding.

Pitch your business

Prepare the best pitch you can, from the beginning. Your pitch deck should communicate all your business’ current numbers succinctly, how you will use the funds you raise and what you seek to achieve. You also need to have a compelling story about the problem, your solution, and how your solution will be better marketed, more effective, and more successful than competitors. Investors are buying into you and your business – so you need to be able to sell it persuasively.

If you have any questions about raising capital for your business, who to approach for funding or what to include in your pitch deck, get in touch with our startup lawyers.

 

Ursula Hogben is General Counsel at LegalVision. She has over 15 years’ local and international investment banking and corporate law experience. Ursula has expertise in capital raising, mergers and acquisitions, information technology and general corporate law. Ursula is an active member of Australia’s entrepreneur community and speaks, writes and is interviewed on issues relevant to startups and established businesses.

 

About Ursula Hogben

Ursula Hogben is General Counsel at LegalVision. She has over 15 years' local and international investment banking and corporate law experience. Ursula has expertise in capital raising, mergers and acquisitions, information technology and general corporate law. Ursula is an active member of Australia's entrepreneur community and speaks, writes and is interviewed on issues relevant to startups and established businesses.

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