Capital Archives - BOLLYWOOD SURKHIYAN

Small Business Venture Capital Strategies

When launching a new small business, often the entrepreneur will consider venture capital as a source of funding. Here are 3 tips to ensure that venture capital funding can be secured when sending out your business plan:

Send your business plan to the right people

Venture capitalists tend to specialize in certain kinds of businesses. Some will specialize by industry, only investing in new energy companies, for instance, while others look for a certain size of company to invest in. It is worth doing the research to determine who the venture capital backers are for your industry, before you start sending out your business plan. Venture capitalists who are not specific to your industry can provide recommendations to make your plan more appealing to other venture capitalists. However, it would naturally be a mistake to send your plan to potential investors who will not even consider it.

Make sure your business has the potential to be profitable enough

Most venture capitalists look for a return of about 5-10 times their initial investment. For example, an investment in a company of $2 million should yield a return of $14-20 million after about five years. To satisfy these requirements, it is generally necessary to have a business which has the potential for a high rate of return on the amount invested. If the rate of return can reasonably be expected to be lower, such as for a clothing retailer, then it is probably better to look for an alternate source of funding, such as an investment or commercial bank.

Remember to include an exit strategy for your investor

Venture capitalists generally do not want to be involved with a new venture for an indefinite period of time. Most will plan to leave the new venture after about five years, so you should offer a clear explanation of how this may be achieved. There can be a variety of reasons for this; some venture capital managers require that the holdings periodically be sold off to acquire other offerings. Nonetheless, by demonstrating that you understand the limited time frame for many venture capitalists, you automatically make your plan more appealing than those which do not.

In summary, by sending your business plan to the right people, by recognizing what rate of return is necessary for venture capitalist involvement, and by including an exit strategy, you can improve your odds of securing venture capital funding for a new and growing business.

Raising Start Up Capital For Your Small Business

You have your business idea, your business plan in tow, your ducks in a row, and you’re ready to get your business off the ground except for one problem – you have no start up capital. Unless you were born into wealth and have it at your disposal, then you are like most small businesses and need a helping hand.

How can you raise start up capital? There are a few ways to go about it:

Small Business Bank Loans

Many financial institutions provide some type of small business loan program. In order to get funding from a bank for your small business, you will need a solid business plan. You’ll have to prove that your business will generate enough cash to make the loan payments. Each bank’s requirements are different but if you are able to articulate how you will succeed, have decent credit, and possibly a co-signer, you may be able to secure a small business bank loan.

SBA (Small Business Administration)

The SBA is a great resource that provides information on requirements, credit factors, how to apply for loans, etc. The web site is a good starting point before attempting to apply at a bank. The better prepared you are, the easier it will be when you begin the application process.

Family & Friends

A lot of small businesses raise start up capital this way. Family and friends usually want you to succeed and believe in your business. It is wise to treat these relationships as real business relationships. Plan how you will repay their loans, the time frame, and at what interest rate.

Angel Investors & Venture Capital Firms

Private angel investors and venture capital firms work primarily in the same way. They invest in the equity of your business and expect a return in the form of an acquisition, IPO, or stock buy back in the future.

The key to any of the above methods is to have a well written business plan. A good business plan will prove that you are serious about your business and that you can demonstrate the way you plan on making it successful.

Use Crowdfunding If You Need Capital For Your Small Business

Crowdfunding campaigns may offer a lot of benefits to small businesses. They can help startups get access to a pool of prospective investors and several fundraising options. Although raising funds is always the primary purpose of these campaigns, you may also use these campaigns to gain visibility, customers, and success. In this article, we are going to take a closer look at some of the primary benefits of crowdfunding for small businesses. Read on to find out more.

1. Efficiency

If you are struggling to build your business and raise capital, you may not afford to pursue conventional financing requirements. In this case, it’s better to set up a crowdfunding campaign on a good platform. These platforms can help you get your message across to a lot of people.

These platforms can help you tell your story and benefit from a focal location that may get you a lot of potential investors.

2. High visibility

Good crowdfunding platforms enjoy high exposure. So, if you run your fundraising campaign on this type of platform, you can have social proof and validation for your prospective investors. And this will build a chain of investors for your startup. And this is what you want to grow your business.

3. Crowdsourced brainstorming

Crowdfunding offers an opportunity for you to brainstorm in order to refine your ideas. The basis of a new business is to look for something that your prospective customers may need. And you can brainstorm ideas to meet that need.

So, what you need to do is grab that opportunity and get customer feedback while putting together a plan for your startup. Crowdfunding can help you get closer to your prospective customers. This way you can engage your customers and field ideas, feedback, complaints, and questions.

4. Loyal advocates and early adopters

Crowdfunding can help you get in touch with early adopters and brand advocates. And these people believe in your product, service, or story. Therefore, they are willing to put their money into the longevity and success of your startup.

They will play an important role in making your crowdfunding campaign a success. Plus, they will get the word out about your success with their friends, family, and members of social networks.

5. Media exposure

Press coverage can attract a lot of potential investors to your campaign. Plus, it can help you raise awareness about your brand. You can achieve these goals through a print publication, blog, or a popular news station.

For instance, a feature story on a social network, such as Twitter can create a snowball effect and bring a lot of investors to you.

In short, crowdfunding has become an ideal way of validating businesses and looking for early adopters and investors. So, if you are looking to reap all these benefits, we suggest that you use a good crowdfunding platform.

Working Capital Financing – Why Asset Based Lines of Credit Work

How can Canadian business owners and financial mangers secure working capital financing and cash flow financing for their business at a time when it seems that access to business financing provides significant challenges?

The answer is that a potential solid solution exists by the name of an ‘asset based line of credit ‘otherwise what we call a ‘working capital facility’. What is this type of financing is it new to Canada, and more importantly – how does it work and what are the benefits and risks?

Although asset based lenders tend to be specialized independent finance firms many business people are surprised to find that deep in the bowels of a few Canadian bank there exists small, somewhat boutique, divisions who specialize in asset based lending. Ironically they are many times competing with their peers down the hall in more traditional commercial corporate banking.

The most active assets these firms finance tend to be ongoing receivables and inventory, but in many cases, utilizing an expert advisor or partner you can structure a facility that also includes a component of equipment and real estate.

Generally speaking a good way to think of an asset based line of credit is one that for a temporary period, typically a year or so in our experience, allows you to margin up and get higher advances on receivables and inventory. That translates into more cash flow and working capital.

One of the main attractions of an asset based lending facility (insiders call it an ABL facility) is that your firms overall credit quality doesn’t play the largest role in determining if you can get approved for this type of financing. As its name suggest, financing is on your ‘assets ‘! And doesn’t really focus on debt to equity ratios, cash flow coverage, loan covenants, and outside collateral. Business owners who borrow from Canadian chartered banks on an operating or term loan basis are of course very familiar with those terms – in some ways we could call them ‘ restrictions ‘

Most lawyers and accountants will tell you that any type of business borrowing should in fact be entertained only with a respected, trusted and credible business financing advisor who can guide you through the roadblocks and pitfalls of any commercial financing arrangement. Missteps in business financing can lead to long term negative effects around such issues as being locked into a facility, giving up too much collateral, or being locked into pricing that isn’t commensurate with your overall asset and credit quality.

What are the key issues you should consider when considering such a financing facility? Primarily they are:

-Advances rates on each asset category (A/R, inventory/equipment)

– How is pricing defined (asset based lines of credit and ABL lending is general is more generous in overall facility size, but you should ensure you are only paying for what you use

– Contractual obligation – in a perfect world (we know its not!) you should be focusing on the ability to pay out at any time, or at a minimum with some form of nominal breakage fee

– Ensure that the asset based lending facility, which generally costs more, will allow to you remain or focus on profitability; we spend a significant amount of time with clients on how that can defer the additional costs of Abl facilities by several different strategies

So whats the bottom line. As always it’s simple – consider asset based lending and an ABL facility as a solid alternative for financing your business. Work with a trusted advisor as this type of financing is generally either mi understood or not too well known in Canada. Be selective in structuring your facility around issues that work best for your firm re benefits derived.That’s solid business financing sense.