In this day and age, cash is king. It is the lifeblood of every organization, and without it, you lose the ability to acquire the required resources which can render your business useless.

There are multiple ways to raise capital. However, it is a very time-consuming and draining process. There isn’t a one-stop solution for everyone.

Below we will cover three main types of raising capital for your business:

Equity Financing
Debt Financing
Convertible Debt

Equity Financing:

If you have ever watched an episode of Shark Tank, this is the technique the sharks use to fund other people’s inventions. Equity financing is when an entrepreneur sells off a small portion of his/her business to the investor in exchange for funds to operate and grow their business. Usually, the dealing starts with “I’m asking for $xxx,xxx in exchange for x% of my business.”

Like everything else, equity financing, too, has its own advantages and disadvantages.

Advantages:

Long term source of finance
Dilution of control
No obligatory dividend

Disadvantages:

No tax shield
Retained earnings
Dilution of control

Debt Financing:

Also known as a business loan, one of the most popular ways of raising capital is debt financing. In debt financing, the company borrows money from a third party, like bank loans or stand-alone lenders. Lenders are different from investors; they give a certain amount of capital with the expectation of returning it with a certain amount of interest.

Advantages:

Keep full ownership
Have to pay the money back
More cash on hand

Disadvantages:

Usually needs collateral
Interest is tax-deductible
Could cause cash flow issues

Convertible Debt:

Convertible debt acts like the bridge between debt and equity financing for early-stage startups. In the beginning, it will function as a regular debt, but over time the debtor has the option to convert the debt into common stock at some point in the future.

Advantages:

Increases Investor confidence
The value of the shares might fluctuate Preserving capital in the initial years

Disadvantages:

Dilution of share capital Usually have fewer restrictions Increased cash requirements
Other Methods: Angel investors: High net worth individuals who provide financial backing to small startups and entrepreneurs in exchange for equity ownership in the company. They are usually family members or friends. Crowd Funding: The process of raising small amounts of money from a large number of people. This method is usually done over the internet, and in 2015 alone, crowdfunding has raised over $34 billion. Business Incubator: Business incubators usually focus on the high-tech sector by providing support for various businesses in different stages of their journey. It usually lasts between 2-3 years. Preparing yourself for the road ahead

Preparation is one of the most important aspects when raising money for your company. It is a step that is often overlooked, and not enough attention is paid to it. If you don’t wish to pump your own money into your business, it is vital to address this step.

While preparing, you will need to keep a few things in mind:

Knowing the industry: Before going out there and trying to source money from whoever, it is essential to understand what’s common in your inudstry. Make sure you speak with as many people as you can while reading up on some recent organizations that saw success trying to get funding. One of the best ways to avoid mistakes is to learn about the mistakes made by the people who came before you. Competitor analysis: Before launching a product or going out to raise funds, you must do a thorough competitor analysis. Understand the pricing strategies that your competitors have used, and do your due diligence about the mistakes that they have made. Sometimes it can be difficult to stand out to investors if you’re in an overcrowded market.

Business Plan: Before going into the investor meeting, make sure you have a full-fledged business plan ready. In this business plan, you need to have a detailed analysis of every aspect of the business, from marketing and sales to finance and accounting. You need to make sure that you have a crisp idea of what you are selling, the story behind your brand, and the breakdown of your products and services.

Finding the right investors: The last but not the least important part of your process is to find the right kind of investors. There are plenty of helpful websites on which you can learn more about these investors.

Gust
Crunchbase Pro
LinkedIn
Pitch Investors Live App
MicroVentures
WeFunder

A few tips to keep in mind while speaking to investors:

Start by building connections.
Not everyone will like your pitch, but make sure you don’t burn bridges with those investors.
Talk about your venture with a passion.
Practice your pitch multiple times before actually going in front of the investors.
Make sure you draft a pitch deck.
Get feedback from investors and update your pitch regularly.

Wrapping up:

There are many ways to raise funds for your startup, and there are many things that can go wrong while pitching to interested investors. It is essential to realize that the decision to raise money is not an easy one, and it requires a lot of work and research.

If you’re currently trying to raise capital for your organization, chances are you’re looking to save money everywhere. Also, if and when you do receive funding, you’ll be taking your operations to another level to ensure you use those funds effectively. One of the best ways to save cash and set your business up for success is to become a member of a coworking space.

Not only can you save money by avoiding the cost of a private space, but being around other like-minded leaders can give you deeper insight on how to approach your problems. There isn’t any better advice than the advice of someone who has gone through similar events in the business life-cycle as you.

Blue Mind Coworking is all about maximizing the positive benefits of an active community while guaranteeing to keep membership rates low. We do our best to lace the Blue Mind Philosophy into everything we do, meaning you will step into an inclusive, innovative, and inspiring environment every time you walk through our doors.

If you’re interested in learning more about the space, click here. We’d love to partner with your organization to meet your needs while providing you the opportunity to grow beyond your wildest dreams.