As a business consultant, over the years, I have had clients at various stages of their business – usually approaching me to help them at the stage when they need funds. A recent client had a very interesting idea that was well planned and quite ready for execution. The company needed funds but they could bootstrap for a short while. Yet, the resistance to the suggestion that they bootstrap was higher than the resistance to take on an investor. When I asked what they need the investors for, the answers were quite unclear – apart from “money” of course.
Just like you need to make sure your own oxygen mask is in place first in an airplane, when it comes to your company, you need to ensure that the urgent requirements are met.
The first step is then to ask – what are the actual requirements and which investor will really help your company to breathe better?
Do you need a strategic partner?
A strategic investor by definition will look beyond the numbers – he will look at synergies. Often, the strategic investor will see value in processes, customers, markets, employees or technology. A lot of these will be intangible in nature and are likely to change because of the strategic tie-up. This sort of investor will inherently be involved in the daily functioning and will want a say in how your business is run - a big way.
If the synergies are strong enough and the implementation noise manageable, this is one of the fastest ways for an organisation to grow – since it is actually two strategies, a new vision and double resources (almost) that can expand to new markets, customers, etc. at a pace which is unmanageable through regular growth patterns.
Do you need the “value” early-stage funding?
The broad investor type that you are looking for will depend on the stage of your business cycle.
Equity funding begins with bootstrapping – where you self-fund. At the next level, there is pre-seed, seed and then finally Series A, B, C etc. The early rounds usually come coupled with expertise to ensure the start-up takes off as expected. This is the best form of funding if you are looking for significant value add and are comfortable with a lot of attached strings – tangible and intangible.
These investors demand high standards of accountability and deliverables with them, which can be daunting for a new set up. However, the biggest upside is that once the initial funding is complete, the start-up minimises its overall growth risks. The next few rounds of funding for growth are a lot easier if you have an angel or seed fund backing you up. Often these funds give you the option of a combination of debt and equity investments. Debt is usually available if you approach an incubator facility for your start-up.
In 2021, global venture investments touched a whopping USD643 billion. Of this, early-stage start-ups raised an enormous USD201 billion and seed funding itself touched USD29.4 billion. Businesses are in need of funding, and it seems like equity is a very popular route. An equity relationship is a play of equity share, the value promised and whether you can deliver on your plans – because once you sign, the strings are expensive to break. The worry is it is often turning into the desperate route. Articulate what you need, set your boundaries in place and know the consequences on either side. Remember- ‘company care’ comes before ‘investor care’.
Pria is the Founder and Managing Director of GMI Advisory WLL– a Management Consultancy specialising in emerging businesses. You can visit her company website http://www.gmiadvisory.com/ to connect with her. You can follow Pria at her Instagram handle @guide_my_idea