You may have just started your company. Heck, your startup may just be a twinkle in your imagination, for now. You may even have started your company a few years ago. Whatever the case, your business needs to be informed about investments. Do you think the most successful businesspeople in the world never worry about funding a project sometimes? Think again.
Here’s a quick guide to gaining investment for your business.
Do I need investors?
The first thing many people who get involved in a startup think about is finding investors. The word 2investor” has become such a hot term when it comes to business. A lot of entertainment has given strength to the idea that pretty much every business needs investors. Television shows like Shark Tank have given popularity to this sort of idea. But you shouldn’t assume you need investors and go straight towards putting tremendous effort into getting them.
Some would argue that there are many reasons people involved in a startup shouldn’t be looking for the help of investors. And it’s true that you should be wary of many things when it comes to investments. A lot of people forget about some of the negatives when it comes to this. Something you should remember is that it’s next to impossible to find investors if this pursuit is your very first startup. This, of course, is one of the reasons you should always have someone with startup experience on your team. Paradoxically, this is actually one of the reasons people try to get investors. They want someone who has that kind of business experience!
You also need to consider the fact that you’re not totally in control of your company once you go down certain investment routes. Investors aren’t just investors – they’re bosses. You need to handle investor relations. They need to be involved in the business politics of your company. You’re selling some of the ownership of your company. A lot of business owners don’t quite appreciate the weight of this when they look for investors!
All of the above, of course, will lead many people to ask a very good question. If I shouldn’t go with investors, then how the hell am I supposed to get the money I need? Well, the first thing you need to bear in mind is that I’m not necessarily telling you not to look for investors. The above is information you need to know, and it does put some people off of investors. But if you can find a good investment deal, then you should definitely be considering it.
So, to answer the question. There are, of course, several ways in which people can get money for their business, theoretically. We’ll be looking into some of those in a minute. But for now we’ll have a look at what people consider to be the opposite of relying on outside investment. It’s called bootstrapping. The name refers to the act of pulling yourself up by your bootstraps. In general, it refers to using your own money to fund the business. The money can be attained by loans or by raising money with your own investments. There is a bit more to it than that; you can read more about it at Bplans.com. It’s not something you should dismiss. Read into it.
The lucky ones
Some people can get investors for their business really easily. If they have close friends or family members with a lot of cash, then they may be able to go to them with their business proposal! Of course, we refer to these businesspeople as the lucky ones.
Such private loans and investments can work very well for everyone involved. Of course, if you let them become too informal then it can result in a legal mess. If you want to explore this route, then you need to make sure you do it right. Read about these kinds of investments at Nolo.com.
The investment options you have
Of course, you’re not limited to finding investors in a super-formal way. If you’ve got a startup or even another business project you need to fund, you could always take your pitch straight to the people. You guessed it: I’m talking about crowdfunding.
Many of you will probably think immediately of Kickstarter when I mention crowdfunding. But there are a lot more business-oriented platforms out there. Read more about attaining crowdfunding for your business at FitSmallBusiness.com.
How can my company offer stocks?
You may have heard that one of the best ways a company can make money is by selling stocks. Let’s say your startup is no longer a startup. You’ve been doing well for some time now. You may even have some investors on board from the early days. But the investors you work with at the beginning of your company’ lifespan won’t always be the ones who can fund every pursuit. You’re within your right to look for other methods of raising money. For many business owners in this position and in need of money, selling stocks seems like the best option.
But how do you go about it? Well, there are several ways in which you can get your company into a position where you can sell stocks. Perhaps the most famous way of doing it is by going public with your company. This refers to the act of your company, which is currently private, performing an initial public offering. You will become a publicly traded and owned entity. Some people see this as a bad thing; most business owners would like their company to be in such a position. You can research the ways in which to make your take your company public at WikiHow.com.
Making your company’s stocks more accessible
Some companies will see instant success when they take their company public and start selling stocks. Some, however, might not see the interest that they were hoping for. Of course, you need to remember that try to get people to buy stocks is basically going through some of the earlier processes again. You need to convince people that your company is worth investing in!
But it’s not always quite that simple. Once you go public, you may be getting many financial blogs and publications offering commentary on your business. You will need to pay close attention to what these guys are saying. They can have quite a big influence when it comes to whether or not people will buy your stock. On the other hand, it’s not always that complex. You may find that people aren’t investing in your stock because it’s simply to expensive!
However, you need to be careful when it comes to reducing the price of your stock. If you already have people who have purchased your stock, then you can’t screw them over by lowering the value of their assets like that. What you do in this event is something called a stock split. This increases the amount of available stocks you have. The price of each stock will decrease. However, the total stocks that people already own will increase, so their share will be equal to the value they owned before the split. Most companies will go through stock splits in their time. You can read about Facebook’s stock split here from MoneyMorning.com. In fact, you may even want to consider investing in recently-split stocks if you’re looking for an alternative way to raise funds!
How investors make money: the liquidity event
Of course, throughout all of this you may be wondering something. How exactly do investors make money from my business? A lot of people don’t quite get how it’s supposed to happen. It does, of course, depend a great deal on the kind of contract you signed with your investors. But it’s highly unlikely that your investors are going to be making a passive income from all the money you’re making in everyday business. Investors are looking to make big bucks, usually in one fell swoop. How does that happen?
Different types of investors will make a profit from this venture is different ways. You can read more of the specifics at Entrepreneur.com. But for the most part, formal investors will make their money when your company goes through a liquidity event. And for most business owners, the opportunity for one of those occurs when the ownership of your company changes. Essentially, the time that initial investors make really big bucks is if you sell your company. This sees the investors (and hopefully you!) get the profit that they were hoping for in the first place. You can read more about selling your company at JustinKan.com.
The legal obligations to your investors
If you are going to sell your business, then you can’t allow for the investors not to be involved in the process. Remember: you did sell part of your ownership to those initial investors! So you actually have a few legal obligations to investors when you do this. Make sure you’re in the legal right! Find out more here at Chron.com.