The OPTIMAL Routes To Raise Money In A Startup Business
Updated: Apr 29, 2022
In this video Argona Partner's Chairman, Richard Anderson, talks about the best ways to raise money with a small business, and also which funding routes you should try to avoid.
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What is the importance of optimal raise routes? I think what this is asking, what what this is talking about in terms of optimal raise routes. I don't know that I would call it that I would see, this is more of a question of what kinds of finance, uh, should you be looking for as a business owner? There's kind of a hierarchy of what is good capital to bring on and what is not so good capital to bring on. The thing I would say would be your, we'll start at the best possible thing you can do. The best possible thing you can do to raise money, to develop everything, to build your business, is you would essentially just not need the money. But in a lot of cases in scenarios where I think about, oh, we need X amount of dollars to go ahead and like, you know, build our product so we can move forward and we're, we're actually like handicapped and we. Um, a lot of our team ends up thinking about ways to get around that handicap and just continue to move forward bootstrapping, regardless. Your optimal setting is never even bring on the capital in the first place. The second setting being, use your team to generate the capital. So sales cures all is just basically the key idea of finance of if you're making money in your business and you can just keep scaling your sales somehow and work harder with the team that you have, or bring on new team members, using some creative finance, the next level would be generated yourself outside of your business so that you are the one being the, the investor.So that would be along the lines of like, Hey, if for example, you know, we have a business in the music industry. If we did some creative system where. Creating music and then selling that music in order to raise funds, that is a really creative way to be entrepreneurial about it so that we don't actually need to go through a raise. Um, the team itself is just going ahead and creating the money, even though it's not in our business in order to go ahead and move forward with, uh, with making an investment or raising capital. So if you can find a creative way to raise capital, even if it isn't just using the same system that your business is running on, that would be optimal. To review, optimal raise route would be don't need the capital in the first place. Find a way around it, um, generate the capital from sales and then generate the capital outside of your own business by by yourself. So those are the optimal inputs where you never even do a raise in the first place. Now, if you really are hamstrung and you can't get. Without raising funds. Your next best bet is to try and figure out how can I do this with debt. Will a bank fund what I'm talking about? Are there private debtors? You know, what kind of things can I do, where it is just solely debt that will be paid back. And as you know, whether it's a multiple, whether it's just a percentage on that debt, it's the optimal way you want to try and avoid selling equity if possible. Now, if you're in a really early stage business and that's not possible, your next level would probably be some kind of debt that would involve an equity, but you want to try and avoid equity, you know, in the sale of equity, as much as possible. The next phase would be okay if we really need money and we can't get any kind of debt, then we would consider something like a safe note, I, which was put together to try and invest in a number of smaller companies, but not have to be on their books constantly and deal with accounting. And so it's an easy. To invest in early stage companies that also doesn't involve throwing a valuation necessarily on the, on the, on the raise. So the easiest thing, and it requires far less paperwork. So something like a safe note would probably be the easiest way to go after you've considered all of the previous things we've talked about. We have safe note, is there anything like that? Um, that's kind of your last case equity really early stage kind of raise, but you want to try and avoid equity up until that point. And so there are things like within the debt portion you want to try. And like I mentioned, gatherer alone anywhere. Um, there are a certified development corporations within your city, that can help you get loans that are backed by the small business administration of America and those loans they can give out to more high-risk sort of early stage businesses. Um, and that way you don't have to sell a portion of your business in order to fund the business. If you really do believe in your business, you'd probably want to maintain a hundred percent of your ownership and then pull on something that would just be straight debt. So that, that can be paid off with the business functioning. After you get started, you're considering. Your maximum upside is much higher. If you have a hundred percent of your own business, as opposed to a few sold portions and portions of it, as you went forward, um, that your maximum upside is now decreasing down with your ownership level. So that's the importance of understanding your optimal raise routes. Remember that you're in the business of creating a good business. You're not in the business of just raising money. So try and get through that phase as quickly as you can and keep focused on building a good.
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