Capital is vital for you to grow your business and take advantage of opportunities when they occur. One way to get this capital is to allow others to invest in your enterprise. Such an investment involves exchanging funds for equity in your business. The difference between equity and debt is that debt involves borrowing money which you will have to pay back with interest. Equity funding, on the other hand, involves selling part of the ownership of your business. the purchasers (share holders) assume that, with the use of their funds, the enterprise will be profitable enough over time to justify their investment.
Don’t equate shareholder ownership with control of your business. You can still retain day-to-day control of your business without having 100% ownership. If you’re unwilling to share ownership, then you will not receive any investment capital.
Investment is often provided in stages by the capital investors against agreed milestones. In other words, you will receive some of the funding which you must use to meet agreed objectives. Then you may receive additional funding, again against agreed objectives, until all objectives are achieved.
You should select investors based on their total contribution to your business, not just how much money they will give you. It is possibly more important to get an investor that will help you grow your business rather than one who simply provides a sum of money.
As your enterprise grows, you may seek multiple investments. This will often involve different investors. Select those investors that best suit your company’s current need. For example, your first investment may require capital for development. For this you might need an investor with technical expertise.
Following a successful development program the next investment might be for production and marketing. Here you might need an investor with marketing expertise. With a successful market entry you may need additional capital to address the international market where an investor with international contacts would be beneficial.
You’ll probably find it easier to acquire the third investment than the first, because by then you’ll have proven you can meet given objectives and milestones. Remember to take advantage of all the assistance and help that’s out there in the marketplace when you’re seeking investment capital.
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