All ventures require capital. Successful entrepreneurs understand how to acquire the funds their business needs.
There is more involved in finding capital for a venture than just gaining an introduction to accredited investors. Your business must be convincingly "investable" before you can expect to receive the capital you need.
RMIP has a deep understanding of the investor mindset. Our investor mentors help you understand issues that may preclude funding, and build strengths that may result in winning the support of angel investors, public funding, and other sources capable of delivering the capital your venture needs to succeed.
Capital is the lifeblood of a company. Obtaining the funds necessary to support and grow a business requires deep understanding of the various types of funding, and the requirements a company must meet to receive funding. Sources of capital available for various business ventures often depend upon the maturity of the company. Very young companies faced with the task of proving the viability of a new idea typically seek some form of early funding. Often, this early funding comes from personal resources, or from friends and family. Slightly further along is "seed-funding." Available sources of seed funding may include peer-to-peer lending, equity crowdfunding, or angel investors. For more developed businesses, venture capital may be an option. Venture capitalists are extremely selective with regard to the companies in which they invest. They typically demand compelling innovation, technology, significant potential for rapid growth, a well-conceived business model, and an impressive management team.
Great products can catch the attention of potential investors, but that is only the start of the path to raising capital for a venture. Investors engage in a process of "due diligence" prior to funding a company. This involves a careful examination, investigation, or audit of the investment opportunity. Entrepreneurs seeking external funding must anticipate in-depth scrutiny from potential investors. Areas of interest may include, but are not limited to, finances, management, production, legal, tax, debt, marketing, and intellectual property. The findings of the due diligence process directly influence investors' willingness to invest. RMIP understands the concerns and motivations of investors. We advise entrepreneurs and businesses on how best to posture themselves and their ventures for winning new capital.
Some companies aren't ready to seek investment. Prior to seeking funding from investors, RMIP recommends that entrepreneurs consider ways in which they can advance their business without decreasing their ownership stake, or equity. Commonly referred to as "bootstrapping," this may involve the assumption of some level of personal debt and the use of "sweat equity" to meet the early needs of the company. Such approaches increase the risk to the entrepreneur, but avoid taking on investors who can limit the freedom of the entrepreneur to run the business as they see fit. A coherent and rational use of bootstrapping techniques can help the entrepreneur create a stronger position from which to seek outside financing. We help investors understand when bootstrapping is appropriate, and when it is appropriate and beneficial to seek outside financing.
Early-stage financing, in the form of a loan, may be obtained without decreasing entrepreneurs' equity stake in the business. Banks are one option. A less mainstream option involves peer-to-peer (P2P) lending, sometimes called "crowd-lending." This involves online services that match lenders directly with borrowers. These services commonly operate with significantly lower overhead than typical brick-and-mortar banks, occasionally enabling the acquisition of loans at a lower interest rate compared to banks. Loans may be made to businesses or individuals, and may be unsecured. RMIP does not typically steer businesses toward this option as a first choice, but it can be a viable choice for some entrepreneurs.
A growing option for funding early-stage ventures is "crowdfunding." Crowdfunding options were expanded in 2012 with the enactment of the JOBS Act, offering potential funding sources for startup businesses. As the name implies, this funding avenue involves raising money from a large number of people. Typical crowdfunding occurs online, and requires an intermediary agent to bring investors together with those seeking funding. Crowdfunding may involve granting some equity share of the company to investors (Equity Crowdfunding) or it may involve providing a product or service to the participants in exchange for funds (Rewards Crowdfunding).
Equity crowdfunding is subject to securities and financial regulation to protect investors. Entrepreneurs cannot simply run their own crowdfunding venture. All transactions must utilize an intermediary entity carrying legal status as a broker or as a relatively new entity called a "funding portal." The Securities and Exchange Commission maintains oversight of funding portals. Equity crowdfunding is a relatively new and potentially groundbreaking method for entrepreneurs and businesses to seek the funding they need.
Rewards-based crowdfunding (non-equity crowdfunding) differs from equity crowdfunding in the benefit offered to the participants. Rather than offering ownership shares in the company, the entrepreneur offers access to products or services. This approach to funding may be particularly applicable to individuals or companies seeking funding to get a project off the ground, finance an initial production run of a product (particularly as a proof of concept), or offer a limited service for a specific period of time. Other advantages include the ability to test market enthusiasm for a project, and to gain customer feedback on products before launching full production. RMIP can advise entrepreneurs on the advantages and reasons behind making use of rewards-based crowdfunding.
Angel Investors have existed for many years, and offer selective funding to small companies that might not be positioned to raise funds from venture capital groups, but whose needs exceed what can reasonably be raised from crowdfunding or other sources. Angel investors commonly have significant business and executive experience. Angels commonly invest their personal wealth (versus investing money on behalf of others), and tend to be highly selective when considering potential companies. Their business experience can be extremely valuable to startup ventures, for which they can provide "been there, done that" type of advice.
Angel investors are usually "accredited investors," which means they meet a required level of affluence as defined under financial regulation laws. Interestingly, despite the name, there is no accrediting agency that issues certification to accredited investors. The business accepting funding from angel investors, and in return granting them some level of ownership in the venture, bears responsibility for verifying the angel's legal status as an accredited investor. RMIP can advise clients on dealing with angel investors, and for well-positioned, eligible clients can facilitate introductions.
Venture capital may be an option for extremely promising startups meeting exacting requirements and carrying the potential for very high returns. Venture capitalists focus upon identifying exceptional investment opportunities with highly convincing technologies, management, and business models. Venture capital investments commonly carry significant risk, and for that reason can be very expensive sources of funding for the startup. On the plus side, there are few funding sources for businesses requiring very large sums in order to move their ventures forward. Like angel investors, venture capitalists can offer startups significant experience and resources beyond monetary investment. Venture capitalist commonly focus upon finding disruptive technologies, not necessarily those companies with proven revenue. This further increases the risk for the investor, and the cost for the startup. For certain unproven but promising ventures, venture capital may be the only available source of necessary funding.
Venture capitalists are extraordinarily selective investors. Not only will they expect high returns, they will look for investment opportunities that may reasonably be expected to offer them a profitable future exit from the venture, such as through a buyout. Entrepreneurs must deliver reasonable evidence that their technology innovation or disruptive business model will work. RMIP can help businesses evaluate their readiness to approach venture capitalists, and advise them on how to address issues that would otherwise prevent them from receiving venture capital.
Regardless of the situation, RMIP can advise emergent companies on ways in which they can seek funding to grow their business. Contact us today to discuss your business needs with our experts.