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How To Increase Business Value For Funding

11 Jul

How To Increase Business Value For Funding

Securing funding is a critical milestone for any business, but it requires a strategic approach. Traditional loan might not always be available, and venture capital (VC) isn’t always the automatic next step. Here’s a concise guide to understanding your funding options and maximizing your appeal to investors

Identify Potential Investor

  • Angel Investors: These may include family, friends, or informal investors. They can provide funding through debt, equity, or a combination of both.
  • Venture Capitalists (VCs): Ideal for high-growth start-ups, VCs invest at various stages through equity or convertible instruments.
  • Corporate Investors: These can be strategic, aiming to enhance their market position, or financial, looking for returns on their investments.

Understand Investment Flavours

Investment options vary based on geographic focus (Indian vs. international), investor type (individual, group, corporate), and legal/tax implications. Consider the form of investment—sweat equity or in-kind contributions versus cash investments—to align with your needs.

Quality vs Quantity

In the early stages, businesses often face low quantities in revenue, employees, customers, cash flow, repeat business, and marquee clients. Improving the quality of these elements can enhance attractiveness to investors. Focus on:

  • Repeat Customers: Build a loyal customer base.
  • Higher-Priced Projects/Products: Aim for higher-value engagements.
  • Notable Advisors/Mentors: Leverage experienced individuals to boost credibility.

Valuation and Business Plan

When seeking funding, establish a realistic valuation. If the desired valuation isn’t achievable, explore alternatives:

  • Investor Categories: Re-evaluate potential investors, including 3Fs, angel investors, HNIs, or venture capital funds.
  • Alternate Scenarios: Develop different plans, like flexible hiring or service-product models.

Business Plans as Communication Tools

A business plan serves as a communication tool for various stakeholders. Define its purpose—whether for internal use, investors, or other purposes like incubation. Highlight your strengths, address constraints, and ensure your plan is structured logically, covering key aspects such as business idea, market size, marketing strategy, competition, and financials.

Prepare Financial Forecasts

Create detailed short-term financials and summarize long-term trends. Ensure forecasts are consistent, backed by industry benchmarks, and reflect your business model. Perform scenario and sensitivity analyses to anticipate uncertainties and validate forecasts with consistency checks.

Approach the funding and business planning with a clear strategy. Focus on improving quality aspects to increase attractiveness, tailor your business plan to your audience, and ensure your financial forecasts are robust and realistic. This comprehensive approach will position your business for better success and attract the right investors.