Seed/growth money for potential next big thing

Discussion in 'Growing and Managing a Business' started by Graeme McG, Jul 6, 2011.

  1. Graeme McG

    Graeme McG
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    Jul 6, 2011
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    Good Morning all - I am new to the forum and it looks like it will be very useful indeed. I am seeking some advice. My fiancé and I have just launched an innovative global language exchange social networking website. After just a few weeks, it is going mad and we have already achieved in weeks what we thought would take 6 months! I have thought long and hard about investment but am loathe to lose any of the future business, however someone who would enjoy hands on and be prepared to inject sufficient funds to take things forward is an option I would seriously consider. So, I guess the question is - anyone got any ideas? I have been on the Angels sites and there is a load of interest, but the cons outweigh the pros.
    Any advice would be much appreciated.
  2. ArcSine

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    Jun 2, 2010
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    1. If you haven't done so already, prepare (with professional assistance, if need be) very careful forecasts and cash flow projections. The objective is to pin down a reasonably sharp estimate of just how much external financing you'll need, both short-term and over a longer horizon. The idea is to avoid obtaining more capital than is necessary, since excess capital can be costly in more ways that one. Having said that, though, it's common for entrepreneurs to underestimate their financing requirements, so be logical and objective in your budgeting. Having to go back to the well a second and third time, simply because you under-budgeted the first time, is not only costly but it undermines your credibility with the investors.*
    2. Having forecast your external financing needs, determine the extent to which it can be financed with debt. Debt is cheaper money, and lenders don't want to co-manage the biz with you (well, not as long as they're getting paid on time). You'll need equity money (angels, financiers, etc) only to the extent that your financing needs exceed the amount obtainable from debt and leasing.
    3. Remember that taking on equity investors doesn't necessarily mean giving up control. With you being the driving force behind the growth and success, an investor would foolish to insist on terms that handcuff your ability to continue ramping up the growth. It's in the investor's best economic interest that you remain charged and incentivized, and trying to wrest the steering wheel away from you is the surest way to pop your enthusiasm balloon.
    4. Sometimes, equity money is more than just money---if you're careful in your selection of investors, you might be actually forming an advisory team of sorts, whose collective biz experience might prove valuable, esp. in those areas which might not be your strong suit.
    5. Carefully evaluate how much growth you can create solely through organic (i.e., internal) means only, versus the growth achievable by leveraging external capital. While sole ownership has its perks and psychological satisfaction, I'd rather own 60% of $1,000 than 100% of $100; and frankly I'd be happier still with 20% of $1,000,000.

    *(Some financings are best structured as "staged" deals, in which it's planned from the outset that the capital will be provide in steps. That's not what I'm referring to here.)

    You'll certainly want to have an advisor(s) (accountant / attorney / tax whiz) at your elbow when planning and structuring any financing deal.

    Many congrats on your better-than-expected success, and here's to much more! Cheers!
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