Get Investor Ready: the Ladder of Finance

1. Bootstrapping:

1. Gets you up and running on minimal budget
2. Forces financial discipline
3. Future investors will see that you have ‘skin in the game’
4. You keep 100% equity

1. You’re risking your own money
2. Growth is likely to be slower and harder

2. Family:

What it is: Funding from your family

Pros:

1. Easier to acquire than other sources
2. Money can be raised quickly
3. Its often ‘low cost’ in terms of equity
4. You begin to understand the responsibility you have towards investors

Cons:

1. This is your family’s money, losing it can lead to heartache
2. Placing a value on your business may be hard

3. Friends:

1. Is easier to acquire than other sources
2. Money can be raised reasonably quickly
3. You begin to understand the responsibility you have towards investors
4. Gives you practice at convincing people to invest in your business

1. Could lead to recriminations if you lose their money
2. Placing a value on your business may be hard

4. Grants:

1. It’s ‘free’ money
2. You keep 100% equity  

1. Difficult to find appropriate grants
2. Typically a time consuming process
3. Stringent criteria

5. Business Angels

1. Can open doors by leveraging their network
2. Can bring a wealth of experience as a mentor
3. It gives the business credibility

1. You will have to give up equity
2. Tend to invest close to home, geographically speaking
3. They will expect an ‘exit’ at an agreed point

6. Seed Funds

1. Doesn’t require you to give up much equity
2. Can open doors by leveraging their network
3. Can bring a wealth of experience

1. Geographical constraints
2. Sums invested are relatively small
3. Stringent criteria

7. Venture Capital

1. Significant investment can be obtained
2. Can open doors by leveraging their network
3. Strong endorsement of business health
4. Often take a seat on the company board

1. Typically require 20-40% of the equity
2. They require a profitable exit in 3-5 years
3. Require you to pay for all legal and professional fees

8. Corporate Venturing

1. Industry expertise
2. Can leverage the corporation’s resources
3. Strong endorsement of your business’ health

1. Typically require 20-40% of the equity
2.  Require you to pay for all legal and professional fees.

9. Hedge Funds

1. Significant investment can be obtained
2. Can open doors by leveraging their network
3. Strong endorsement of your business’ health

1. Typically require 20-40% of the equity
2. Require you to pay for all legal and professional fees.

10. Private Equity

1. Will typically provide support and advice on helping the business grow and how to better manage finances
2. Tend to advise on how to sell the business or bring it to IPO
3. Very strong signal of business health

1. Private equity firms demand significant equity in a business
2. Private equity firms will only typically enter the life a of a company in its later stages when it is getting close to IPO and has a good track record, so these deals are very rare for relatively new companies
3. The founder may be replaced by a specialist CEO