Capital is to business what nutrition is to life. Whether it is about starting a business or expanding an already existing business, "stage appropriate" funding is always a good thing, because capital can be used in tandem with growth. You could have the best of ideas, plans and people, but without capital, none of the dreams will come true. Though ways to raise capital is often seen as a challenge, it need not be as tricky or difficult a situation as it is made out to be. As an entrepreneur you have many options when it comes to ways to raise capital – diverse sources and investors.
WAYS TO RAISE CAPITAL– PERSONAL CAPITAL
Option one when it comes to ways to raise capital is using your own savings or your credit cards. When you have money of your own, why look at external sources? But before you opt for this, make sure you have a good talk with subject matter experts, look into the long-term consequences, and decide which form of equity fund is the best way for raising capital via equity. You could have savings, mutual funds, life insurance or credit cards (the last being the most risky funding option), so when you use the funds for your business venture you will need to understand which of the options have scope of bringing in better returns on investment.
When your own funding is not an option, there is another great way to raise capital – friends and relatives. Though it may seem shameful to ask them for capital, it seems to be quite a popular option because according to a survey it is the option of choice for 30% of entrepreneurs who are looking for ways to raise capital. If you decide to go this way for funding, you must have your attorney draw up a business contract because though you approach people you know for funds in an informal, non-business way, business is best done transparent, telling them how their investment will profit and ensuring that you will keep up your part of the agreement is the most professional way to do business.
Private investors are those who are interested in making money with their capital through non-traditional markets. These “angels” could be anyone – someone you know, your banker, your attorney, like-minded individuals, or an individuals who for the love of business, seek out new opportunities to invest in return for equity ownership. These people can give you ways to raise capital, guidance for start-ups, improve your ideas and mould your business, but they usually demand high returns for their investments.
The next option for ways to raise capital are venture capitalists who provide funds to your company if your business can prove that it has a solid track record and a potential return on investment. Make sure you find a venture capital firm that has similar goals and ideals as yours. Ensure that you have a risk management plan, the foresight to predict where you see your company down the line, and do consider all possible contingencies.
Remember, venture capitalists do not in start-up companies and they invest in people, not just companies.
A good place to look for while looking for ways to raise capital is your office – your own employees. If you have a committed workforce that really believes in the organisational goals, then you might even find an employee who would help you financing and become a potential investor. If your potential or current employee is likely to become your investor, you get a really committed workforce that is driven by reasons other than the salary.
Before going public with your company, you should consider all the possible risks while looking at ways to raise capital. Capital equity is more risky than any other type of funding. There are tons of legal points that surround this project, especially if it’s for budding business enterprises. Public equity involves a great amount of stress in terms of running the company and a considerable loss of control. The advice of a knowledgeable attorney is absolutely essential. It’s good to take a consultation before deciding on ways to raise capital, or discussing it while choosing the option.
Who do you turn to when there’s no one to turn to – Banks! Yes, as the least expensive route to get funds, banks are your answer on ways to raise capital for business. With as less as 2 percent, starting a business is simpler than ever before. There is also a great deal of documentation and paperwork to be done. However, as an entrepreneur you will have to have a clean state credit history to get a loan. Different banks might have different parameters to offer loans. You have the choice of a secured loan or an unsecured loan – the difference being you having to pledge your assets Vs. you paying lesser interest. Alternatively, you could also look at money brokers who deal in circulation of funds between investors and entrepreneurs. Money brokers act as a bridge in financing and can almost always guarantee that you get the amount of money you want/need, for a percentage of the gross amount that is their fee. The retainer fee is always paid up-front, so be ready for that. No isn’t that an easy way to raise capital?
MINIMUM COST & MAXIMUM RETURN
Yes, obtaining capital is the first and foremost concern when it comes to taking your business to the next level. But an equally important challenge is to have a way to raise capital that isn’t very heavy on the pocket and puts the capital to use such that you are able to maximize return on invested capital. So before you act, deliberate on the ways to raise capital best suited for your business, make sure you budget right, adhere to the timelines, analyze the method of investment, formulate a backup plan, buffer for contingencies and garner more value from your investment.