If your business is in need of working capital to grow, expand, or launch a product or service, Ahmed Bakran suggests by calling on private or public external investors who will take a stake in your company’s equity. This is called “funding” your business.
When setting up a business, extra funds can give you leverage to hire the right people, invest in areas that could yield profitable returns, and also capture the market. This can further allow you to qualify with additional funding vehicles to further your growth even more.
Looking for investors, isn’t it just for startups?
One may think soliciting funds from investors may mostly concern startups, which generally offer a new product or service, versus an existing established business. However, existing successful profitable businesses still need capital to not only sustain their operations, but grow and maintain their position in the market. Business is competitive, and the one that continues to grow and develop is the one who is in a position to succeed.
There is a category of investors who prefer established profitable companies, to reduce their risk in exchange for lower potential yields. Additionally, mission based companies or certain industries certain investors may be more comfortable with.
How does a startup funding work?
It takes place in several stages:
- The first step: that of the “Pre-seed.”
- It consists of turning to those close to them: family, friends, professional relations, etc. to quickly set up the business. These are also known as “Angel Investors.”
- The second stage: that of “Seed” or “seed”
Much of the Pre-seed and seed funding goes towards financing the development of a product or concept. There is no set rule on what needs to be accomplished, however your business plan should dictate a strategy for various milestones in the business. Once you have developed your product, then you must test the product, validate the market on a larger scale and proceed with market penetration. Pivots and adjustments are often necessary through trial and error.
Make sure the deal goes off on its own
The surest way to mitigate risk for investors is to be able to guarantee that even if the business deal fails, they won’t lose money. Unfortunately for the investor, investing is never a guarantee. Sure, they’re there for a potential high return on their investment, but they’ll be much more likely to bet on you and your team, even if it’s risky if they know that the worst-case scenario is they lose their money. According to real estate development expert Ahmed Bakran, who has successfully participated in the development and acquisition of several real estate projects, this requires that “your team can repay what you borrow from investors, with a buffer for the unknowns. “
With any investment into a startup, ideally no personal guarantee in terms of collateral would be required for the recipient. Traditional financing such as banks, etc require some kind of personal guarantee secured by personal assets.
“With angel or seed investments, no personal collateral should be required from the borrower,” explains Mr. Bakran. “When the deal is stand-alone without any personal guarantees, the risk gets shifted to the investor, however in exchange for that they would gain equity on a potential growing asset.
This isn’t always feasible for some new startups or entrepreneurs, which is why often business owners turn to the bank or the SBA. So as a rule, raise funds without any personal guarantees, take full advantage of this position.
Remember people invest in people explained Ahmed Bakran
Sometimes the detail of the deal itself can keep the focus on the terms, potential ROI, and financial benefits of each. It is important to remember that investors are people who are deeply interested in specific causes or who are interested in specific business ideas. You might have an incredible blockchain investment opportunity, for example, but if you speak with an investor who cares a lot more about solving today’s healthcare crisis, they won’t be as excited about it. investment potential. Research the investors you network with. Look not to find the wealthiest investors, but those who have aligned their past investments and businesses with what you are building and creating, so they can add value to your business beyond financially.
Even if it forces you to find more investors because they are “little fish”, remember that an investor who believes in what you are doing and is excited to be part of its investment can be a cheerleader for you. Investors know other investors, and that’s how hundreds of millions of dollars are raised. Do follow Ahmed Bakran‘s advice, he is an American entrepreneur and investor specializing in various industry verticals.