In the bad old days lack of cash was a real barrier to entry for any business trying take to the skies. These days whilst you can do much ‘more for less’ a business still needs some cash to get going but maybe not as much as you think.
Let us give you an example: Boo.com was a short-lived, British 'internet' company, founded in 1998. They spent GBP85 million of venture capital in just 18 months and it was placed into receivership on 18 May 2000 and liquidated. One of their owners, ten years later, admitted that almost half of the funds went on developing their website and associated back-end systems for retailing transactions. Today you can actually do the same thing for about 10k or less. However unless you want to be continually bootstrapping your organisation you will never get the growth nor scalability that you need so cash is always going to be needed as well as careful application of this limited resource. We have a good track record of raising and applying cash to the right areas but it is vital that you are investment ready and have the right corporate and operational structure to make yourself appealing to new channels of financing.
Once you have your cash whether venture funded via equity or debt funded it is critical to spend it in the right areas and to apply it to where it is going to get you into a profitable space as quick as possible. You are going to need to show your investors a very healthy application of funds or it is unlikely that the next round will ever happen. I difficult times you will sometimes have to make that cash stretch a very long way.
We are adept at helping you find new sources of investment and providing you are investment ready can help you with all sorts of funding requirements. Once you have funds we are pretty good at helping you apply those funds in the areas where you need it most: sales, marketing and operations for example.
Depending on where you are with the business will determine which form of finance you want to pursue and there are other avenues such as invoice financing, R&D reclaims and crowd funding to investigate should you qualify. We have expertise in most forms of finance and we are highly proficient should you need our assistance.
As you will probably know equity financing is the process of raising capital through the sale of shares in your business. Equity financing essentially refers to the sale of an ownership interest to raise funds for the business but the question of valuation is often a thorny issue and its validity is often the cause of many a heated debate between interested parties. For example an owners valuation of their company might quite not match a potential investors valuation for the same business and often a cause for getting ‘shown the door early’.
Bear in mind that the less market traction you have – the cheaper will be the perceived value of your company and you may have to give away more of your company at a reduced value. Depending at what stage you are at will depend on how much you can raise and at what price. There are also different varieties of investor including HNI, VC and Institutional and they may not be right for your company at your period of growth.
Equity funding is not necessarily right for everyone and there are a few alternatives and we can help you make the right choices and decisions. We might even be able to help you find the right investor once the time is right.
There is no generally no misunderstanding about this one and when any company borrows money to be paid back at a future date with interest it is known as debt financing. It is obviously much easier when made in the form of a secured loan although once again, depending on where you are in your growth stage, an unsecured loan is not impossible. A firm takes up a loan to either finance an acquisition or as working capital and there are plenty of organisations willing to do either.
You can think of debt financing as being divided into two categories, based on the type of loan you are seeking: long-term debt financing and short-term debt financing.
Long-Term Debt Financing:
Long Term Debt Financing usually applies to fixed assets your business is purchasing, such as equipment, buildings, land, or machinery. With long-term debt financing, the scheduled repayment of the loan and the estimated useful life of the assets extends over more than 12 months. A lender will normally require that long-term loans be secured by the assets to be purchased.
Short-Term Debt Financing:
Short Term Debt Financing usually applies to money needed for the day-to-day operations of the business, such as purchasing inventory, supplies, or paying the wages of employees. Short term financing is referred to as an operating loan or short term loan because scheduled repayment takes place in less than one year. A line of credit is an example of short-term debt financing. Lines of credit are also typically secured by assets or other forms of collateral like a personal guarantee.
A word about ‘Exit’:
Basically there are two of exit as a business owner i.e. selling your business (or merging it with another) or introducing your company to a stock market where your shares will be publicly traded, typically an IPO. We work exclusively with an M&A boutique and when you are ready to explore the possibilities of selling we can advise you accordingly.
An IPO (Independent Public Offering) on the other hand is a desirable channel of exit for business owners and their investors. However it is not for the faint hearted, is very costly and fraught with risk. Your company will be at the mercy of the market and your investors will demand ever increasing quarterly revenue growth to feed the beast. If this does not deter you we would be pleased to offer some advice and guidance.