Growing your business – the equity story
If you own your own business you’ll know that it burns cash daily and you need to know how to fund this. But you should also be thinking about the equity side of your business too.
Highly successful entrepreneurs live more in their balance sheet than their Profit and Loss. The P&L is a short-term view of the operating status of the business. The balance sheet tells you where the future is and how to resource the business for growth. Pre-empting where your cashflow will be 6 to 12 months out is critical. All too often entrepreneurs grow their business, run out of cash and end up raising funds under desperate circumstances, which can be expensive.
I caught up with a friend recently who is helping investors from offshore find solid businesses to support. The businesses will not only receive $10m but the investors will use their skills and networks to open up opportunities in foreign markets. Strategic investors such as these can be a huge help to a business. While a cash injection is one thing, having doors opened for you can’t be underestimated.
Funding your business can take several turns and you should always be thinking ahead to the next step. Take Xero for example. Initially the founders funded the business; a second funding round involved employees, directors and strategic investors; the next step was a stock market listing; further capital has since been raised through strategic and retail investors as well as institutions offshore.
So how do you find strategic investors? This is much harder than finding good customers and it needs to be part of your business strategy. Here are some suggestions:
- Start with those closest to you. While I don’t recommend taking money from family unless they are already experienced investors, they may be able to help you find the next person to speak to.
- Look to your team or your customers. Quite often your employees will be interested in investing because they know the business. In my experience people with ‘skin’ in the game tend to push harder to make the business a success.
- Find an Angel Investor to mentor you and fund you through to the next stage. These people will invest in people not ideas. Build your networks and ask for 30 minute coffee meetings to do a pitch. But do your homework first. The person you are approaching needs to be the right fit.
- Move onto VC or Strategic Investors. Generally your Angel will help with this. But don’t worry, as you execute your business, pick up momentum and build your PR, you will get approached. That said it pays to seek these guys out 6 to 12 months before you need the money. Presenting your story and then coming back six months later and demonstrating you have achieved what you said you would is gold for investors.
Most important of all is to have an ongoing KPI around your equity story.
We’d love to hear your insights or questions about equity in business.
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8 May 2012 #