Anyone invested or been invested in?
Discussion
Morning all... I'm starting a new company (already started but will be trading once the patent stuff is finished) and may need some additional funding at some point.
Now I was wondering if any business owner out there has had external investment in their business and how much of a stake they gave up for the investment OR from anybody who has invested in a closed ltd company and what they got in return.
Is it worth the hassle or would I be better off going to Mr Bank?
Thanks
Now I was wondering if any business owner out there has had external investment in their business and how much of a stake they gave up for the investment OR from anybody who has invested in a closed ltd company and what they got in return.
Is it worth the hassle or would I be better off going to Mr Bank?
Thanks
Try as hard as possible to self fund any business. This is sometimes impossible, but any external investor will want a sizeable chunk of interest/profit on their investment. This is money you've earnt but are giving them.
Work out if the investment value will allow you to make a much bigger profit personally and still cover the interest you have to pay your investor.
Work out if the investment value will allow you to make a much bigger profit personally and still cover the interest you have to pay your investor.
Use debt funding if you can. You do need to pay interest, and repay the capital, but you have full control of your business and - once you have cleared the debt funding - all the profits are yours.
OTOH, if you can't get debt funding, equity may enable you to create the business, but you are then beholden to other shareholders in the business, who will also be looking for a return - but if that's what it takes for you to make your share, its still worth it.
You could look at a DTI Small Firms Loan Guarantee Scheme loan - you take a loan from the bank, and pay an insurance premium to the DTI, but they guarantee the majority of the loan to the bank, i.e. the bank will look at the loan with a lower risk profile.
You will need the dreaded business plan for the bank to get it, though...
OTOH, if you can't get debt funding, equity may enable you to create the business, but you are then beholden to other shareholders in the business, who will also be looking for a return - but if that's what it takes for you to make your share, its still worth it.
You could look at a DTI Small Firms Loan Guarantee Scheme loan - you take a loan from the bank, and pay an insurance premium to the DTI, but they guarantee the majority of the loan to the bank, i.e. the bank will look at the loan with a lower risk profile.
You will need the dreaded business plan for the bank to get it, though...
You haven't really provided enough information to give a reasoned answer Alan. For example, how much are you looking to raise, which sector is it, and what is the projected return? I suspect you're concerned about IP, but a few pointers wouldn't go amiss. If you're considering a bank loan, then you must be looking at 6 figures maximum I presume.
I find most things in business come down to people, whether investors or entreprenuers. One of the best pieces of advice I ever had related to hiring people, but also applies to investors: choose people you would want at your side in a fight.
When you have an investor in your business, they are part of your business, whether you like it or not. Some of them are passive and others get very involved. All varieties can be either an asset or a liability. You need to decide who/what you want in your business. It's not just about the money. This applies equally to business angels, which seems to be what you were fishing for originally. Over 50% of the time, business angels are a pain in the arse to everyone else involved in the venture.
An alternative source of (non-dilutive) capital is government grants, from the UK, Europe or overseas. These can take awhile, often >12 months, to show fruit. However, I've seen many companies stay afloat with grant money while they were establishing the business and no-one else would touch them.
If you are looking at raising >1M for this, then the obvious route is venture capital. This industry has a pretty poor reputation, and in many cases it's deserved. Find a good one though, and they're an asset. One of the companies I do work for is a VC, and they're one of the best ones. I would want them in on any enterprise of mine simply because they add so much value. I would rather 10% of something valuable than 100% of bugger all. The balance between these two extremes needs to be weighed up though, and only you can do that.
Kevin
I find most things in business come down to people, whether investors or entreprenuers. One of the best pieces of advice I ever had related to hiring people, but also applies to investors: choose people you would want at your side in a fight.
When you have an investor in your business, they are part of your business, whether you like it or not. Some of them are passive and others get very involved. All varieties can be either an asset or a liability. You need to decide who/what you want in your business. It's not just about the money. This applies equally to business angels, which seems to be what you were fishing for originally. Over 50% of the time, business angels are a pain in the arse to everyone else involved in the venture.
An alternative source of (non-dilutive) capital is government grants, from the UK, Europe or overseas. These can take awhile, often >12 months, to show fruit. However, I've seen many companies stay afloat with grant money while they were establishing the business and no-one else would touch them.
If you are looking at raising >1M for this, then the obvious route is venture capital. This industry has a pretty poor reputation, and in many cases it's deserved. Find a good one though, and they're an asset. One of the companies I do work for is a VC, and they're one of the best ones. I would want them in on any enterprise of mine simply because they add so much value. I would rather 10% of something valuable than 100% of bugger all. The balance between these two extremes needs to be weighed up though, and only you can do that.
Kevin
Thank you all for your answers. I'm in a bit of a chicken and egg situation. I have developed a new lighting product (household, DIY market, Kitchen fitters, shop fitters etc.) that I and others think is fantastic (why wouldn't I?) that, as a business is completely scalable in that I will to begin with simply sell to small trade outlets and direct to specialist installers but has the potential to sell to the major DIY stores. I also see no reason why it can't be a success all over europe and beyond.
Anyway, enough of my trumpet blowing, if things stay relatively small scale as my existing business has then I will be happy (capable) to fund it myself.
If things get bigger then more money will be required as well as some more specialist knowledge of perhaps marketing & sales for example.
I'm much better at designing and making things than the overall selling and management package!
Anyway, enough of my trumpet blowing, if things stay relatively small scale as my existing business has then I will be happy (capable) to fund it myself.
If things get bigger then more money will be required as well as some more specialist knowledge of perhaps marketing & sales for example.
I'm much better at designing and making things than the overall selling and management package!
Debt finance was our immediate means to get the ball rolling, but nuts on the line is distracting, if you get to a point as low as we did then you cancel meetings on the basis of being unable to pay for the rail ticket.
You mention a patent, funding for that is available through local "regeneration" trusts, we used Suffolk Regen, but i am not familiar with your area.
As above though, DTI small firms is a good bet, i have found high street banks a little blinkered to new ideas but again as mentioned they only risk 25% so are slighly more lenient. Dont show them too big a picture, they just need to know they will get the money back plus their pound o flesh. Go in there with multi M plans and tehy will smile at you inainly. Tone it down, tell them about the ptoduct and sell yourself as much as the plan.
My company is now in the market for VC approach, but as you require the people you can trust in a fight.
Can i PM you 456? personal recomendations are highly valued.
Sorry to steal the thread a little. But good luck, get out there. I hate it when people said it to me but what about part time work/consultancy to keep balls away from the block?
You mention a patent, funding for that is available through local "regeneration" trusts, we used Suffolk Regen, but i am not familiar with your area.
As above though, DTI small firms is a good bet, i have found high street banks a little blinkered to new ideas but again as mentioned they only risk 25% so are slighly more lenient. Dont show them too big a picture, they just need to know they will get the money back plus their pound o flesh. Go in there with multi M plans and tehy will smile at you inainly. Tone it down, tell them about the ptoduct and sell yourself as much as the plan.
My company is now in the market for VC approach, but as you require the people you can trust in a fight.
Can i PM you 456? personal recomendations are highly valued.
Sorry to steal the thread a little. But good luck, get out there. I hate it when people said it to me but what about part time work/consultancy to keep balls away from the block?
I have invested in several private companies directly during their early phases and continue to do so.
Every case is different so it's not really possible to comment, but as an investor I always try to get a reasonable stake for my investments, but a small enough stake such that the entrepreneur feels they are still in control - I want them to be motivated and working hard.
Regarding VCs, in recent years I've always found them hard to deal with at early stages, as they all seem to want to invest in companies with 3 yr track records, who are profitable but need funds to grow.
Guy
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