Starting a business is fun, if you already have a bank balance that will let you buy an office in the city with high ceilings and a downtown view. However for most of us starting a business from scratch might not be as fun and the road up can get quite bumpy.
Financing the startup can be one of the most challenging decisions you’ll make, and I say this because there are so many modes of financing available, either you get completely swamped by the overwhelming choices available or you start by taking out a loan to cover your funds. Majority of the businesses take the route of a loan from the bank, however hopefully by the end of this article we will have you convinced that there is so much more that is being offered and you just need the right people to guide you up to your destined success!
The reason why taking out a loan is not the fittest option for young businesses is because; you never know what will happen. I always opt for a ‘what if’ analysis when accounting for money, primarily because loan is an obligation and it’s not yours, so it puts your business at stake, if at all you are unable to meet the set obligation, you will find yourself in serious trouble. Being prudent is always the way to go, but just being prudent gets you only so far, you have no control over the macroeconomic factors at play and you can never estimate that the grass will always be green, hence for me taking out a loan means;” you already need to have a business to start a business “
Venture Capital is the new thing and a safe haven for startups! Do you believe in angels? If you do then venture capitalists are the closest things to angels you will find on the wall street.
Now in all honesty venture capitalists are no people of God, however they are the people who will have the same objectives for your business as you, because success of your business will benefit them greatly. Hence the business outlook will be aligned, also due to the increasing success rate of young companies, massive growth in technology, improvement in the IPO market , abundant entrepreneurial talent, and government policies favoring venture capital formation, these angles will come and find you rather than you finding them.
Having said that, it will be up to you to make yourself discoverable for them to find you, it’s time you take that cloak of invisibility off and start doing things that will get you “found”
One thing you will need is a flashy business plan, now I hate to break it to you but investors won’t put in money if they don’t find your business plan fruitful, investors are nasty creatures, they come where there is potential wealth. It is for you to make sure that your idea stands out from other business offering similar products/ services. The best thing to get things going is to invest in a website and spread the word. The more thought out the social media optimization the more chances are there to get discovered.
You need to pitch in an idea which screams ‘sustainable growth” the thought process of a venture capitalist is a short term one however their outlook is long term. If they don’t see your business idea surviving for the next 10 to 15 years, they will not bother putting in money, even though they plan their exit in the next five years. For them to put in their money they need to see returns, and how much added value the investment brings to them .
The next most important thing is human capital. Hire the best people for the job, don’t compromise on any position, because the people who work for you are your biggest capital and no amount of money will bring you more profits or success if the people who work for you aren’t good enough. Venture capitalists have an eye for people with exceptional talents, it ensures them that their money is in the right hands.
A well-defined capital allocation plan is necessary, it sounds easy because at the back of every entrepreneurs mind there is a plan as to how he wishes to go about his investments, however mapping the thought process out on a piece of paper can be quite tricky, and you will also find that keeping money lying around in a savings account just isn’t enough. The way venture capitalists see this is where the opportunity cost of their money is the lowest. For example investors put in $100 in your account and you end up using $70 then you will have to allocate the remaining funds somewhere, such as short term securities to minimize the opportunity cost of money. Now it’s great if you are good at trading in securities and you have the alternative investment area covered, however for most mere mortals this can be quite a challenge because chances are most venture capitalists will pass up on investing in your business if you don’t think about alternative means to make money.
It is important that minimize the opportunity cost of money by all means, at the end smart work pays off a lot more than hard work.
It is not always true that VC’s will discover you, especially if your business is less differentiated, you might find that supply of capital might be limited, until you start spreading the word. Approach venture capital firms and pitch in your idea. Many firms take in business ideas with high risks because of the possibility of higher returns, also there are many firms dedicated to investing in a specialized area or subsector. By targeting those which are the most relevant to your business will increase your chances of obtaining an investment.
And last but not the least venture capitalist judge your outlook and dreams for the future. They tend to believe in you more not only if you are 100% dedicated to your work and business but also how much you value it. A future outlook which is not just an imaginative path to success but a well-planned map to the future.
Yeah getting a VC to invest in your business should be no problem at all. Good Luck!