Raising Capital For Your Small Business
Raising capital for a business venture isn’t always easy, but it’s crucial if you want your business to grow. Even if you have an incredible business idea, without acquiring capital, it won’t become the next unicorn. But you’ll need to prepare yourself: the world of investment can be unforgiving, with networks being difficult to break into, and the language used by investors often leaving startup founders scratching their heads.
The good news? If you dedicate a bit of time and effort to understanding the world of investment, you’ll be able to get your head around it, and get your business up and running in no time.
Learn about different ways to fund a business
Raising capital isn’t a one-size-fits-all activity. There are different categories of investment and types of investors out there, and it can only benefit your business to know what they are. Everything you learn about the area will impact the decisions you’ll be making down the track, including identifying how much capital your business needs now and in the future, and whether there are other businesses you can draw a parallel with to help you set realistic goals about funding. There are plenty of resources to help you with this, including Y Combinator’s glossary-style guide to different types of investors and their incentives, and this Forbes list about investors for start-ups.
Be able to explain the investment you’re seeking
Capital raising in Australia is most effective when it’s
(a) Clear what you’re asking for, and why; and
(b) You have a great business model.
You’ll need to be able to justify the specific amount of capital you’re seeking, and to convince investors to be a part of your start-up journey, they’ll want to see things like your projected revenue, how you plan to grow your customer base, what makes your idea different to others (often more a question of marketing than the actual idea), and what value your business could add to their investment portfolio. This guide from StartupNation is a useful introduction to five of the most common types of investors: banks, angels, peer-to-peer lenders, venture capitalists and personal investors.
Grow your professional network
How do you get investors for a business idea? Firstly, you’ll need to look in the right places. If your existing professional network consists mostly of fellow start-ups, it’s time to start looking further afield for connections that can help you with business capital funding.
Events or festivals in your city or town that are aimed to connect investors with start-ups are a good place to start (use the search term ‘startup events’ with the name of your location), as is asking the people you know for any tips they have on investment, and whether they know anyone who can help you in your search. It goes without saying that LinkedIn is also a valuable tool. Potential sources of investment do exist on the platform: Anand Daniel, an early-stage venture capital investor, writes of the benefits of this approach: “The investor can quickly browse through your profile to get a good sense of your professional background… [and] check for mutual connections to do a quick reference check.”
See more of our tips on attracting investment here.