Whether you’re seeking private investors or joining an incubator, here’s how to find money for your business.
By Jonathon Clarke and Michael Budden
Fundraising is one of the most important parts of the process of starting a new business. In the fundraising stage of business development, you will have to work out how much money you’ll need to launch your business successfully in order to afford all the equipment you need, to pay your staff, to buy a location – and then find places to raise it from.
Michael Budden and Johnny Clarke, founders of pharmacy recruitment platform Locate A Locum remember their fundraising phase well. From their initial idea, they managed to gather funds from a range of sources, and have grown from a small, local business, into a network employing 16 people, with links to over 8000 pharmacies across the UK. They have decided to share the sources they used to secure the cash to start their business to encourage other budding entrepreneurs to step out in confidence.
Source One: Incubator Programmes
Incubator programmes help new entrepreneurs to sharpen their business skills, develop business plans, and build a support network which will help them toward success. They can also provide some cash funding to ideas which prove their worth during the programme.
More, incubator programmes often have strong links with angel investors. Locate a Locum said “Our incubator programme opened our network to investors, provided us with office space and mentors who challenged us on assumptions we had. Even a small thing of learning how to pitch provided invaluable as we raised our funding round.”
Source Two: Seeking Private Investors
Private investors can be a huge help to young businesses in more than one way. A good investor is someone who can bring more than their money. Ideally, they can add business experience, support and practical help.
Johnny and Michael said “we have two investors – one who is in the pharmacy technology space and second who is a software veteran. We have benefited more so than just having access to their money.”
For your small business, the investors will be different but the principles will be the same – Find investors who understand the spaces your company works in, and work with them to make your business more than it could have been without their experience.
Source Three: Sell Business Equity
Selling business equity is a smaller scale version of seeking investment. Where you may have two investors, to raise an equal amount you may need to bring 10-20 small equity holders on board. While investors are private, equity sales are public.
Selling equity means trading a percentage of ownership in your business in exchange for an up-front cash investment. As one of the few ways of funding your business which does not incur long term debt, it can certainly be helpful, but be careful. It does come with certain responsibilities to your new shareholders, who will expect regular updates and a seat at the decision making table, even if their stake is small.
Source Four: Take out Business Loans
Small business loans can be a hugely beneficial to a young business. They can come from a variety of places – banks, small business lending agencies, family and friends – and come with different conditions and repayment times which can be tailored to your business.
While investors may be difficult to manage, managing a bank loan is as simple as managing your business ledger. Also, in your early days, having a consistent monthly payment to build your income around can give you a certain amount of financial foresight which can be hugely helpful.
Entrepreneur Magazine suggest a list of questions to ask before applying for a business loan – how much do you really need? Can you pay it back? Can you gather it from other sources?
You might have the ‘working hard’ part of your business down, but when it comes to funding, it’s time to work smart, so gather as much advice and expertise as possible to determine the best possible route for your own business. For Michael and Jonny, these four funding sources helped them to grow from a two-person business to having a team of 16, representing over 8000 pharmacies operating across the UK. Perhaps your own success may be found by following in their footsteps.
Jonathon Clarke and Michael Budden are founders of Locate a Locum.