business funding

Do’s and Don’ts When Raising Capital

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BrokerDealer.com/blog thanks the Sydney Morning Herald for below extracts re: profile of top gun entrepreneur Greg Taylor and guidance on best ways to raise capital for start-up enterprises..

Entrepreneur Greg Taylor

Entrepreneur Greg Taylor

“..Raising capital is stressful and incredibly time consuming. It’s a full time job. So if you embark on a money raising mission, make sure your business is at a stage where it can survive (and hopefully flourish) with minimal input from you. The raise will demand most of your time and attention for the next little while.

It’s actually a lot like internet dating. You write a profile (information memorandum) you go on a first date (swipe right), you decide if you’d like to see each other again, (thank-you text), one party plays hard to get (valuation), meet the parents (due diligence), buy a ring (appoint lawyers), ask the question, (term sheet) and get married (settlement).

Once you’ve got a little seed money to work with, it really then becomes an issue of timing. If you go to the market looking for money before you have a concept or product, you don’t have as much leverage with investors and could potentially be beaten down on your valuation. So founders are generally better off building the product and getting as much traction as possible before courting investment to reduce the risk profile of their venture.The longer you can hold off, the more leverage you have with investors. But the longer you wait, the more risk there is that your competitors will land funds and get the jump on you. And it can be hard to play catch up.

Preparing the business for a capital raise correctly is critical. My advice is to find yourself someone who knows what they are doing. I was incredibly fortunate to have met a trusted adviser who works in the digital space.

QUICK TIPS FOR RAISING CAPITAL

Dos

  • Have all your legal documents prepared and in order.
  • Ensure the information you provide to potential investors is easily understandable and clear. Some aspects of the business may seem simple to you but complex to them. It’s always better to put more information than less.
  • Have all of your company information (ABNs, insurance, contracts) centralised and easily accessible so that it can be supplied to potential investors upon request.
  • You will end up getting married, so make sure your new partners and you both have the same goals (exit strategy, founders’ roles etc) and that the culture is right.
  • Be prepared to negotiate and get a deal done.

Don’ts

  • Don’t think you have the cash in the bank until it’s in the bank
  • Don’t be cocky. You need to show investors that you not only have a good idea, but are willing to listen and learn off them. Most of the time, they are investing 80 per cent in you and 20 per cent in the product.
  • Don’t have an unrealistic goal on valuation – its better to have 10 per cent of something huge than 100 per cent of nothing.

Greg Taylor is the co-founder and CEO of Clipp, an app that allows consumers to open, view, share and pay their bar tab or restaurant bill seamlessly and securely. Clipp secured $1.55m investment in November 2013. Greg sold his previous venture, eCoffeCard for an undisclosed amount earlier this year.

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What Are Angel Investors And How Do They Differ From Venture Capitalists?

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Early-stage startup companies have big challenges ahead when it comes to making their business a success. You already have the concept. You may even have an eager customer base ready to buy the products. What you may still need is the seed money to get operations off the ground. Without the proper funding, success may be unattainable. It is often important in these early stages for a startup company to for angel investors to help get things moving in the right direction.

What are Angel Investors?

An angel investor is an entrepreneur much like yourself. They have had the previous experience of owning and operating a successful business until they became a very high net-worth person. They are ready to invest their own funds into a successful startup company to help you build and grow your operations.

Since they understand the high risks of investing in early-stage startups, angel investors seek companies that hold a certain criteria. You, as the business owner, have to be ready to build up the business until the time comes to exit through a merger or sale. This process is how the angel investor gets a return on their investment.

In the past, many angel investors would try to stick with companies close to home, but the advent of the Internet has made it easier to invest globally. Websites like BrokerDealer.com are part of this revolution. Ideally, angel investors are looking for a startup company that promises high returns, scalability to its operations, strong management, and a unique product or service that will attract a large market for an extended period of time.

What Is the Difference Between an Angel Investor and a Venture Capitalist?

You may be wondering what the difference is between an angel investor and a venture capitalist. Both are entrepreneurs who invest in startups that promise high returns. Yet there are some major differences between the two of them.

While an angel investor will give your business the seed money at the very early stages of your operations, venture capitalists usually wait until the startup has a bit more groundwork underneath it and is beginning to produce revenue. Angel investors also often invest using their own funds. Venture capitalists, on the other hand, will use other investment sources such as foundations, pension funds, and insurance companies.

Another major difference will be the amount of invested money given to you. Angel investors normally stick with investing smaller amounts ranging up to $100,000. A venture capitalist may invest $2 million or more into your startup. Some angel investors may work in entrepreneurial organizations called angel groups that will invest from $200,000 up to $2 million in a startup based on the size of the group.

Understanding angel investors and how they operate can help you decide if they are the ideal investment partner for your startup. If you are running a fledgling startup and you don’t mind giving up some ownership of their business, have a high-demand product or service, expect large revenues in the coming years, and have an exit plan in place; then seeking an angel investor may be the answer to your company’s financial needs.

 

Sources: http://www.forbes.com/sites/tanyaprive/2014/03/11/the-most-common-question-that-new-angel-investors-ask-2/