Today’s newsletter addresses a frequently asked question – should I seek funding? If so, where do I start?
I hope you find these tips, and my shared experiences useful.
Who to approach to fund your business/idea is one of the most important choices that you will have to make. When I originally established my company, one of my top priorities was understanding what my minimum financial requirements would be.
This will vary depending on the type of business you run and the particular requirements that it has.
Funding Your Dreams
In my case, I didn’t have staff or need rental space when I began, so it wasn’t too large a number. and I was able to fund it myself.
You may be in that position, or you may need a substantial investment to get your dream off the ground.
As a female entrepreneur, you have two broad choices. You can either access debt financing or or find investors.
Debt financing involves getting a business loan from a bank or another creditor (friends or family, for example). Or you could use a credit card – ideally one with a low interest rate, which you service consistently.
This type of financing could be the best route for you. If you have great credit, and you can properly forecast how long it will take you to pay it back, then it works. It also eliminates the need to be accountable to any one other than yourself and your creditor. Typically, with debt financing, so long as you make your payments, no one is involved with the day to day running of your business.
Equity finance, which is when you raise capital by selling partial ownership in your company, is an alternative.
Typically, the 3Fs, a tongue-in-cheek acronym for Friends, Family and Fools (i.e., close supporters of the entrepreneur), are the first resource of the small entrepreneur who wants to make a breakthrough.
This route requires that you develop your pitch/investor deck, and help prospects buy into your vision. In these cases, it is very important that you accurately determine the value your idea. Finally, you must be clear on how much of your business you are happy to part with for a specific investment.
I coach start-ups in pitching for financing.
I have seen many instances where entrepreneurs, particularly female entrepreneurs, give away too much of their business, because they don’t take the time to properly evaluate their business.
Another error I’ve witnessed, is accepting money even when they are being low-balled.
Of course, it doesn’t help that female-owned start-ups typically attract just 1% of the over $1bn in venture capital financing offered each year. It can feel like you should take what you get.
But with more female angel investors getting into the space, there should be more investment available in time.
Are You Ready?
Whichever source of financing you choose, it is vital to have a thorough understanding of the benefits and drawbacks associated with each approach.
Here are some things to think about.
Timing and reason for seeking finance are important.
What do you want financing for, and how soon will you see a return on the investment? Are you developing a new product or service? Are you hoping to expand your customer base? Or perhaps you want to make an acquisition that will give you an edge?
Knowing exactly how the investment will be used makes it easier to tell the story and help your creditor/investor understanding your vision.
The amount of money that you require is also going to be another of the most significant considerations that you have to make.
Before I launched my company, I gave careful attention to the amount of funding it would require to get off the ground. Inadequate funding can result in a variety of problems, including the inability to take calculated risks, which in my opinion is the key to growth.
When you don’t have adequate capital, it can restrict your ability to deliver your vision. Alternatively, too much capital can also be an expensive burden.
Finding the right balance is important.
In conclusion, approaching investors for funding for your company is a significant move that has to be thought out carefully.
Start by gaining a solid understanding of your company’s goals and requirements, as well as the stage it is now operating in.
You can acquire the cash you require to assist in the expansion of your organisation with some careful planning and preparation on your part.
Keep thriving sisters!
