The ability of an entrepreneur to obtain funds in order to get their business off the ground or sustain the daily operations of the business is known as his capital raising skills. Capital to any business is key and needed for business activities such as, the purchase of materials, payment of salaries etc., right from ideation, development, growth, and expansion stage of the business.
Aside using one’s savings, there are other types of capital used by businesses to fund operations, namely; Grants, Debt, Equity, and Quasi-Equity or Quasi-Debt. We will briefly look at these types.
- Grant is capital given to a business usually by a larger development organization as a philanthropic gesture and does not require payback or an equity position.
- Debt capital is borrowed funds usually interest bearing and raised by obtaining bank loans, personal loans, credit cards or bonds etc., that must be repaid at a later date.
- Equity capital is raised by selling shares privately or on the stock market.
- Quasi-Equity or Quasi-Debt is a hybrid form of capital that shares characteristics of both Debt and Equity financing.
Why is capital raising important? Having an idea is pointless if one does not have enough capital to translate it into a reality. Read more on this in our previous article Raising Capital for your Business as an Entrepreneur.
As much as knowing the right type of capital for your business at any stage is important, the ability to secure the capital you need is the most crucial and critical step in the process of capital-raising because it is invariably the determinant of the success and growth of any business. Extraordinary capital raising skills are required for obtaining funds quickly and efficiently, through the most appropriate sources. Below are some tips that can prove helpful for improving one’s capital raising skills:
- Be realistic about the amount of capital required. Optimism is a trait commonly found in entrepreneurs. However, the real world is often quite different than the record sales of the ‘unique’ product as well as the slow competitors that business owners might envision. Therefore, estimates about required capital should be made as realistic as possible so that enough money can be obtained. Otherwise, entrepreneurs are likely to make the usual mistake of asking for just too little or too much money and risk the chance at capital-raising success.
- Determine the value of your business. It is important to begin the process of seeking for capital by determining the value of one’s business. This is an important step in determining the kind and cost of capital required. Determining the value of one’s business will determine the kind of capital that would be cost-effective. Business owners must ensure an appropriate value of their business which can be determined by the current assets of the business.
- Network as much as possible. As an entrepreneur seeking for capital, ensure that everyone in your social and business circle is aware of the fact that you need money, and is open to the right form of investment, or funding. Find people who have managed to raise capital prior to you, discuss with them your needs, and ask for introductions. Getting introduced through a network is usually preferred by investors as well because it means they have a trusted connection.
It is believed that a business is almost impossible to start or be successful without capital. Using up one’s savings is one option but savings will typically run out. Therefore, raising funds through other sources is important in order to finance business activities to scale up. Determining the right type or mix of capital is needful, however, improving one’s capital raising capabilities to actually access the required capital is ultimate.