As businesses grow, they increasingly need capital to fuel future growth efforts. Capital can come from different sources, including loans and new investment. For both start-ups and mature businesses, new investors are an excellent way of boosting the capital available and adding skills and knowledge. There are several issues that you should consider when recruiting new investors, including their background, and what they can bring to the business over and above the actual funds.
Examine your investor’s background
An investor offering money to your business will often require a stake in the business in return. For this reason, you need to be careful who you accept investment funds from. Investors with previous criminal activity or a history of bankruptcy will be a stain on the reputation of your business.
Find out how committed an investor was to previous businesses that they invested in. Did they simply provide the money and then cease all involvement, or did they contribute their skills and knowledge to the future growth of the business?
The benefits of new funds
It is difficult to fund rapid business growth organically through accumulating profits. Therefore, many businesses opt to get lump sum investments – even if it requires the dilution of existing shareholdings. A large sum allows a business to rapidly acquire new property, staff, and capital equipment to increase production or service delivery.
Fresh funds can be applied to a marketing campaign to make a major push for increased sales as often only intensive marketing spend can achieve this – and for that, you would need a cash injection. Investment funds are also often used to acquire complementary or competing businesses. Yusuf Alireza rounded up a group of investors while CEO of the Noble Group for just these sort of reasons – significantly improving the group’s competitive position.
It’s about more than just the money
Investors bring more than just hard cash to a business. Often, investors are experienced business people who with their decades of working in commercial environments can offer you advice in several areas. Skilled investors will help you to build your business strategy into something that is more sustainable and more capable of achieving growth.
There is also a reputational benefit to getting important investors in your business. This can be especially important for start-up companies, which will find it easier to sell their products or services if they have a well-known business personality invested in the business. It illustrates that there is mature thinking behind your business and that a highly skilled businessperson places trust in your ability to deliver.
Select your investors carefully
When accepting funds from an investor, you will most likely exchange some shares in your business. Over time, the original investor’s shareholding in the business will shrink, so you need to make sure that the investors you involve in your business bring more than just cash to the table. Reputable investors with extensive business experience will help you to grow your business significantly faster than you can on your own, resulting in a larger pot of profits for all the investors.