As tempting as it is for any business owner to believe his or her success is attributable entirely to their hard work, we all know that a helping hand is sometimes required in the push to bring the organization to the next level. That is where working with investors like Summit FR can be to your benefit.
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The help an investor can provide to a business can be broadly divided into categories that include the following:
- financial support;
- expertise in an area the owner is unfamiliar with;
- networking opportunities, and
- idea generation.
As a company grows financial capital gets consumed and many organizations find themselves in need of a cash injection to bring them to the next level. A loan on which you make regular repayments is one way of accessing cash, but that loan counts as debt. Investment by an external party counts as equity in your business and the investor will hope for a return over a period should you sell the company on or even take it public. Alternatively, an investor may take a revenue-based financing (RBF) option, under which they agree to take a percentage of future revenue in exchange for an upfront injection of money. Owing someone else a percentage of your company limits the return you will ultimately receive for your efforts or in the case of an RBF arrangement limits the revenue you can reinvest in the future. However, using external investment can help your company reach the next stage in its development when the opportunity to do so might otherwise be limited.
Financial capital is one source of assistance a business owner can reach out for, but you can also seek out human capital.
Rather than make a financial investment, an external party might offer their skill, expertise or knowledge to help your company grow. The incentive to help a business with more than just an injection of funds is a great motivating factor with so-called angel investors, who are wealthy individuals often with an entrepreneurial background eager to help a new generation succeed. You might be the type of business owner whose expertise lies in developing a unique product or service, but when it comes to marketing or sales or even day-to-day administration, you need outside help.
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Experts recommend getting assistance from several investors in the area of human capital, rather than just one. In that way, you can draw on a wide and diverse group with experience and expertise across the entire business spectrum. Having several investors on board increases networking opportunities many times over and increases the number of new ideas to bring the company forward.
Of course, you may not necessarily agree with the views and recommendations of your investors. A disadvantage of choosing external support is that you give up a degree of independence and control. Someone investing in your organization wants a return, so they have a stake in ensuring the business succeeds and more often than not that means a level of engagement in how the company is being run. How well that sits with you depends on the level of independence you value, but it is something to consider carefully when choosing to go down the road of external investment in your venture.
Before bringing in external investment in a business, as an owner you need to consider whether your organization and the investor are a good fit. You may be in need of an external source of finance as your company progresses to the next stage in its growth but if the investor is in it for a short-term gain and does not have the best interests of your organization in mind then you are sowing the seeds for future problems. Likewise, if you prefer to maintain complete control someone with a hands-on approach to managing their investment in your business will not be a good fit.
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To get an idea of how an external investor approaches the work they do, especially concerning human capital, consider the example of someone like David Kiger who brings the lessons he learned founding and growing logistics company Worldwide Express to bear in helping start-ups as an angel investor. Starting from the premise that a new business is a risky, high-stakes venture, Kiger is eager to assist those making the same brave leap into entrepreneurship that he once did.
From essential financing to idea generation and from external expertise to a shoulder to lean on in tough times, an investor can benefit your business and help it grow in so many different ways.
- Pros and Cons of Financing a Business
- What Investors Want Before Funding a Business
- Why Investors Say “No”
- How Angel Investors Can Benefit a Small Business
- Understanding the Kinds of Capital for Your Business