The crux of any scale-up is securing funding. You, as a company, have created a product or service that works and now you want to expand and grow but to do so, you need funding.
A common route company’s go down to try and achieve funding is through grants and non-dilutive funding. This avenue, though fruitful, is often a lengthy process and your application needs to be tailored to specific requirements.
This article will give you the lowdown on two great fundraising options — Angel Funding and Revenue Based Financing.
Before beginning however it is important to say that whatever source of fundraising your company is looking for, you must be one hundred percent prepared. You need to know the ins and outs of your business, the short and long term strategic plan, as well as the company financials.
A classic scale-up mistake is not doing research on the kind of funding that’s best for your business and coming into the investment opportunity ill-prepared.
Without a comprehensive knowledge of your business and it’s strategy, you will find it difficult to secure fundraising from any avenue.
Angel Funding
Angel Funding is a hugely useful alternative in attempting to procure all of your investment from one person or group. If you can manage to secure all the funding you need from one place then clearly that can be good news but that’s not always possible and the process can take a long time — time that perhaps your company doesn’t have.
Angel Funding is the least expensive and fastest source of capital. In contrast to the previously mentioned funding options, through Angel Funding, you get small but frequent amounts of capital.
This allows you as a member of the Board of advisors to maintain the progression of your business while keeping your scale-up’s momentum. Your progression may be at a slower rate than if you were to secure business funding all at once but your company’s progression will more likely be consistent. This will reassure your investors and workers as they can observe the company clearly moving forwards.
This fundraising option is only getting more and more popular and companies are now able to source funding by the millions through Angel Funding.
Revenue Based Financing
This is a flexible funding solution that has grown in popularity in recent times and has paved the way for success for many businesses.
Revenue Based Financing is a funding option where you take on debt upfront and for which you pay a fee. Don’t be put off by the debt aspect, however, because you will gradually pay off your debt each month, and the main attraction of this option is that you pay off your debt in proportion to your revenue.
This means you will only ever be paying back what your company can afford, giving your business a level of security not all funding gives you. If your revenue goes down then you pay less and if it increases then you pay more.
This option for funding is particularly pertinent to digital businesses as lenders who offer Revenue Based Financing tend to prefer companies that solely have transactions online. This is because they can easily view the revenue of the business and therefore there’s transparency with the amount of debt that should be paid back each month.
Where Finance Directors can come in to help
As mentioned earlier the importance of securing funding for your scale-up is paramount. This, however, doesn’t mean you have to be a financial expert yourself – your skills may be more attuned to strategy or leadership. What it does mean is that you need to have someone on your side that is a financial expert.
A part-time finance director could be crucial to your business by helping you decide which is the best funding route to go down. They would also take the lead with the preparations and planning in order to secure the investment. For example, when you’re faced with unforeseen challenges upon securing your funding, among other things, a Finance Director would provide professional advice on what the company’s strategy should be.
In conclusion
Angel Funding and Revenue Based Financing may be the perfect sources of investment your company needs if you’re looking for options that don’t necessarily put your business at high risk of debt.
If you want your company to progress immediately and at a steady rate, then Angel Funding is the option you may well want to choose. You won’t get the large sum immediately but you will see immediate results in your business.
Revenue Based Financing is the option for you if you’re a digital business that wants funding with a steady and fair strategy of repayment.
You can take the first step in achieving funding by evaluating your business’ finance strategy. An easy and quick way to do this is by completing the free Finance Diagnostic where you’ll receive a personalised report from which you can improve your finance strategy.