SOURCING FOR EQUITY CAPITAL TO FUND BUSINESSES

It is more than important to create and make your business sound and looks viable, attractive to investors with ready ample funds to invest in your business.

There are certain basis and simple ideas that needs to bear in mind before visiting potential investors or Equity Capital Companies to raise the amount of money required for the business.

First action is to visit a qualified business attorney, there are many laws, rules and regulations pertaining to how equity capital can be raised from the public, and the laws change often.

Entrepreneurs require knowing more about the legal aspect on how to construe borrowing agreements and contracts which can legally protect your interest, liabilities and far most important not to affect your current business especially the finer clauses of the legal prints.

Getting money from relatives is one source, it may seem like going on your legs begging them to agree but the pride had to swallow.

Surprisingly, in a recent survey, almost 30% of entrepreneurs said that they raised all or part of the capital they needed through family members.

If this is your choice to source from them it has to make sure that you have your attorney draw up a regular business contract or agreement assuring that their money is in safe hand and shall rewards them with handsome returns.

Another method is to utilise your personal savings, bank credit cards, insurance loans which is the most common way for entrepreneurs to raise needed business capital.

Before choosing this method however, discuss entirely with your financial advisor and to view all the consequences that can happen long-term in the event that the business venture fails with no returns.

Applying for Venture Capital and Angel Investors to invest in the business is quite tedious because if there are no solid proven track records of the business, these investors will not waste time with any Entrepreneurs unless it can be proved that the Company have the potential to grow huge within a certain operation period.

They will be looking for a good return on their investment and of course, the larger the better.

If Entrepreneurs that can prove the Company has high potential returns then it is advisable to find influential people to introduce your Company to these investors whose business ideals, visions and goals suits both parties’ criteria.

Sometimes it is whom you know and not just what you know; there are investors whom invest through mouth piece not just the Company.

Potential or Current Employees are also sources that the Entrepreneurs can try and convince them to invest in the Company there working at the moment.

With this method, there are some advantages, not only you get a really committed workforce, but many equity employees are also willing to accept a below-market wage in the beginning (especially if you do the same).

There are other benefits, but this choice is not without its pitfalls as well, so before going this route, discuss with your business attorney, and put policies into place that plan for potential problems.

For example, what do you do if an employee's work becomes substandard?

Or an employee quits and goes into competition with you after learning all of the company secrets?

Putting a risk management plan into place and considering all contingencies is your best bet for this option.

Inviting the Public to invest, if you are able to go public and offer your company stocks and shares to acquire the amount of money to be invested, this option is also risky and not recommended for new and existing Companies.

Going Public require a lot of professional planning because of the number of legal issues involved, consulting with a knowledgeable attorney beforehand is vital.

There is also a lot of stress involved in running a public company, and a considerable loss of autonomy and control.

Before making this choice, be absolutely sure that this is the wisest course of action for your business.

No matter which option is chosen if Entrepreneurs wish to seek for equity capital, it is important to make preparation with the homework, be transparent about your business visions, goals and objectives.

Contact your reliable business consultants, seek advice from attorney may increase the possibility of raising the money for the intended business.

Options to Obtain Seed Money

One of the most difficult stages for a business to raise capital is when it needed urgently at the initial stage when the prospective venture is little more than an idea with most committed entrepreneurs.

Financing funds raised at this moment is called seed money in reference to the fact that it is the first infusion that allows the company to grow and progress.

To go beyond a business concept, market research of the product or concept development to reach the point of generating sales, an entrepreneur must be creative in the financing methods considered and to get access superbly through numerous available sources.

This is in general one of the first resources that an entrepreneur can utilise without doubt and arm with confidence and commitment, business starts through personal investment which in practice is a prerequisite to raise outside financing at later stages.

Freeing cash from personal assets may involve liquidating savings, a temporary downsizing in lifestyle or sale of property or vehicles.

An entrepreneur should, however, be prepared for all eventualities, including business failure, and should not place themselves in personal financial jeopardy to fund the venture.

It is very common for business Entrepreneurs to borrow against the equity with their primary residence.

It is prudent to allocate a portion of the funds raised from financial institutions to cover the loan payments, rather than investing them entirely in the company, so as not to risk losing the home eventually.

This is also a widely used option where the Entrepreneurs need only to service small monthly minimum payment a comparatively large amount of funds being borrowed.

The downside is that payment delinquencies or defaults have a negative impact on the business owner’s personal credit rating.

While opinions remains divided on involving personal contacts in business ventures, the reality is that friends and family are among those most likely to express interest and confidence in an entrepreneur’s ability and capability to manage the intended business.

It is always advisable to document and sign legal agreement, all funding arrangements in writing and structure repayment options for the capital provided rather than relinquish equity.

Borrowing against certain insurance policies, stock portfolios and retirement accounts can allow access to capital without liquidating assets and more than often are offered with favourable borrowing terms and conditions.

If the company requires significant equipment or fixed assets, it is worth considering borrowing from Leasing Companies and this option removes the necessity for large upfront capital outlays, although does require meeting monthly payments.

Equipment suppliers will often provide leasing terms to businesses at a time when bank financing is not available but at times the interest could be higher than banks.

Local Government also offer incentives programs to encourage and assist in development growth for small businesses by providing access to micro loans, investment matching programs or tax credits.

A business might also qualify for government loan guarantee programs that facilitate access to bank lending, often at favourable rates.

Seed money is often quoted as being provided by family, friends and employees, but with the right business founder using all financing resources available, nobody will be considered as a fool to have backed a successful business later.

The Traditional Lender for Entrepreneurs

Many small businesses turn to traditional lenders (Bankers) when they are ready to open for business then they gather their business plan and march to a bank in the hopes that the bank will fund their business venture.

Most small business owners normally used their personal finances as security and that is a terrifying proposition due to all sorts of risks that they confronted after starting their business, so it is important to study and conduct Risk Management before any further actions.

Another alternative available and that is business-to-business finance, there are companies whose goal is to offer business funds which is known as traditional financing and this can be the perfect avenue for many new businesses to pursue.

Business to business finance is essentially a simple concept it is those established companies that often want to invest in other businesses to generate source of income.

They have the funding resources available to offer not only capital but in many cases advice as well so that money invested were be visible, transparent and guide the business venture to develop and grow into a sound and stable company to be able to make profit sharing between the parties.

Try to contact such companies and at times when funding is needed you can decide turning to them looking into the prospect of business to business finance.

These companies are in fact already successful in business, so once they pronounce their interest in your venture and get more information on what sort of qualifications required to obtain their financial opportunities.

The traditional Lender aspect on business to business finance is when one business takes another under their financial wing so obviously by offering them support in key areas such as marketing, the smaller business will flourish which translates into increased revenue for the larger supporting business.

One area that this might be utilised is in IT system support while some are fledgling in businesses still do not recognise the need for having a strong web presence.

The Internet is a fundamental resource for any new business and in a business to business financial arrangement, if the larger business provides ongoing support in the areas of building and expanding an online market, their investment will grow together subsequently.

Not all direct business to business financing will directly involve with smaller companies, so the reason is that there are companies created that handle the transactions and act as a proxy for the larger corporations.

In this instance business to business finance, which is a larger corporation who wants to provide financial support to smaller businesses will contact acting- in-between-company who provides essential financial services to those businesses.

An agreement is reached where the larger business provides the financial backing and their initial investment is secured in one of several ways negotiated by the proxy company.

One way this type of business to business financial transaction takes place is the same route that traditional financing is handled signing of loan agreements to secured funds and the smaller business utilise the capital to finance their business and make payments with returns back to the larger corporation.

The larger company who works as an intermediary takes a certain percentage and offers additional support, including business training and ongoing advice in an effort to ensure the smaller business will climb the ladder of success and earn streams of income for the larger company.

Business to business finance is an important and effective player in the financial markets today in assisting small company to achieve their objectives, goals visions and looking forward to expand its worth by lending money to generate more money thus both company will enjoy prosperity in their criteria of combination.

Access to adequate financing is critical in determining business success as explained here capital for a business is provided in two basic forms; equity and debt.

Equity represents an ownership stake in the company and shareholders generate a return on investment through dividend payments and appreciation in the firm's value.

Debt represents an obligation with scheduled repayments, principal plus interest, and lenders generate a return through interest earned after the duration of the invested funds.

Equity holders assume a greater investment risk, like employing expensive key figures to help in control of the business, product service quality control, spend efforts, money in promotion, advertising just to mention a few and therefore demand a higher rate of expected return than debt providers

The type of capital available will be determined by the company Board of Directors, guided development to expand its growth prospects and management's ability to present a credible business model to create profits of good returns.

Angel investors often organise themselves into Angel Networks or Angel Groups with an agreement to share research and pool their own investment capital seeking for handsome returns.

There are individual who provides backing to very early-stage businesses or business concepts which are typically entrepreneurs who have become wealthy, often in technology-related industries.

An Angel Investor is someone who invests in a business venture, providing capital for start-up or expansion and usually looking for higher rates of returns than traditional investors and more than often they have technological expertise which will actively contribute to the project.

If you have a start-up company that is seeking for funds up to $500,000.00 the best option is to locate and meet with Angel Investors.

Angel Investors are people that invest their own money in start-up companies similar as many of them started out the same way, as an entrepreneur with their own start-up company.

They like the entrepreneurial spirit and are looking to fund a start-up and at the same time offer their own business advice and wisdom.

Also, their financing terms are less hassle then that of Venture Capital Company requirement and can usually make a decision in a few weeks on whether or not they will finance your company, that is why there known as” Angels”.

Venture Capital Company, on the other hand, usually will not fund any business less than $5,000,000.00 and may take several months of reviewing your business plan and conducting due diligence before they even make a decision.

Here are some tips that should help you in your search for Angel funding

Prepare A Solid Business Plan

Make sure to provide sufficient time, effort and research into your Business Plan because it will definitely show when read and you will be wasting time in your search for funding.

Seek advice from business people that you know and whose opinion you respect to read it and offer their constructive criticism.

If something is not clear and transparent to them, or sounds too farfetched to them then redo the appropriate revisions over and over again even if it had to be edit or re-edit until it is presentable to the Angel Investor.

Most country have investor forums, sometimes referred to as "Venture Capital Forums," even though they are open to Angel investors and entrepreneurs, these forums sometimes focus on a specific topic or are just opportunities for people to get together and network with one another to discuss different ideas.

This is a great way for you to network and watch who in your area is funding start-up companies and sometimes these forums even choose a handful of companies to make presentations to a group of investors for funding purposes.

Call one of the officers of a company that recently have successfully obtain these funds then politely seek his advice on the know-how and not make mistakes which they may have apprehended and so in such instant it save time without repeating the same mistakes others have made.

What If Each Investor That Says, "No, We Can't Fund Your Company."

Enquire from the investors what it was about your Business Plan they do not like or why they felt it would not be profitable.

Do not try the hard sell approach or try to get them to change their mind but instead, accept it as a learning experience and try to correct the problem with the next investor.

Even if the company is just a newly set up business and the product or service is not on the market yet, it will be wise to have a professional looking website that is at least informative and can tell the visitor your plans and at what stage you are currently.

Maybe you could create a section called "Articles" and in that particular section you could have written articles about the Management Team, plans, visions, goals, objectives or that have been published on other sites.

This will impress investors when they check out your site and it will give them a more understanding how strong is the Management Team and do they really knows their particular industry well enough to make their company a success.

Writing articles is a great way to get your name out in the field, it also helps to establish yourself as an expert in your industry and once investors see that you are a published author, this will also build up their confidence towards the start-up business.

If possible join an association where your business will be in operation because this will not only help you with your business plan, but will also help you with networking with others Entrepreneurs to exchange information about funding.

Some country have Venture Capital Associations, they are may be not just operate as large Venture Capital or Private Equity Company they are also open to Angel Investors and Entrepreneurs.

Try to network and contact online with Funders of all sorts and knowledgeable business people like yourself, then keep in constancy contact with them through all methods of communication.

Bear in mind that by contacting or communicating with all these investors will probably obtain funding because there are many more Entrepreneurs like you seeking for money and the percentage of success is not what you may expect the type of results, but keep pursuing, there may be some investors that match his criteria.

Venture Capitalists typically provide much greater levels of funding, but their investment criteria and due diligence processes are more rigorous and most individual venture capital company are often limited in choosing the type of industry and geographical focus.

Since investment amounts are larger and Venture Capitalists aim to realise a return within three to fifteen years, they are often consider as second tier private equity funds providers once business model is established and operative.

Venture Capitalists are heavily involved in the strategic planning, providing expertise, management systems and business development of companies and the joint-venture management must be prepared to forgo some autonomy in controlling the business venture.

Raising capital though bank loans, or other forms of debt, allow existing shareholders to retain equity and control but this option is not always feasible especially for an early-stage company since assets and cash flow may be insufficient to provide security or service debt.

For smaller amounts below US$100,000, a business owner may be able to obtain a loan based on personal credit or assets instead of relying to a joint-venture or borrow from Venture Capitalist.

Another form of obtaining funds is to sell business receivables where future payments from customers are used to guarantee repayment to the Lenders.

A business may eventually be able to access the wider capital markets through the issuance of publicly traded equity or debt securities to reputable Lenders.

Entrepreneurs should access current situations with abilities and capabilities to manage the business to a success level before taking any consideration for raising more capital and funding.

• Concisely articulate the company's products or services and market opportunity
• Have a strong core management team in place or identified
• Provide realistic financial projections substantiated with peer comparisons
• identify the firm's competitive advantages and edges
• Bundle up the capital requirements of the company and state how much shareholding equity they are willing to offer to the Capitalist

All of these elements should be incorporated in deep-thought well prepared business plan to be forwarded to any potential investors, capital providers, bankers, funding professional/advisors.

Entrepreneurs must be prepared to put efforts to identify their personal business experience with great potential to service any form of repayment with interest or returns to the funds providers.

Every early-stage Venture Capital provider would like to be the next Sequoia Capital with the vision to invest in the equivalent of Yahoo or Google and receive handsome returns.

Given the probability of this foresight opportunity or luck is unavailable frequently; the best option is to invest in industry-leading teams, Real Estate, Hotel Industry with proven proprietary technology in magnificent markets.

If your industry is among this description and match your business, then the path to funding should be relatively smooth but however, if elements are lacking, you can still position your company to at least generate interest in your investment proposal to these Funders.

Initially, take the time to make an in-depth research of your business ideas, make sure that the fundamental concept and execution plan include all the criteria necessary to generate required returns for shareholders in a defined time frame.

This preparation sounds basic, but many entrepreneurs mistakenly believe that an impressive business plan compensates for a poor foundation which is not correct at all.

Do whatever you can with limited resources to get the business to the point of having revenue generating customers and show momentum in the growth of your customer base.

If you need the funding to support and improve to the better point of sales, then identify potential clients, who will verify that they have a compelling need for the product or service.

Demonstrate that you have serious competition plans to overcome others business player, at the same time display the transparency of sincerity with serious preference which means you are a competitor that is generating significant profits for its shareholders.

This provides a potential investor with the confidence that a market exists and sales can generate income then at least identified one competitor which is for you to compare on to prove why your company has a competitive advantage and edge.

A solid business idea that is already generating revenue in a proven market will significantly raise your chances in the quest for Venture Capital financing for mutual benefits.

As an entrepreneur, these should also be the business criteria that can judge further capital and time investment to bring forth success together with full funding support by Venture Capital.