Equity investments: Key considerations for a business
Do you have a business idea that’s ready to be taken to the next level? Do you need money to take your company or product from concept to reality? If so, it might be time for you and your team to raise equity investments for your business.
Equity is usually given in exchange for an ownership stake in the company. Still, there are many factors involved when deciding how much of an ownership stake one should give up and what type of investors one should target.
This blog post will discuss some things you’ll want to consider before raising equity investments for your business.
8 factors to consider before raising equity investments for your business
Here are some important factors you as an entrepreneur should take into consideration when seeking out equity investors.
- The investor/ firm
What is the most important decision you can make as an entrepreneur? Chances are, it’s your choice of investors. When deciding who will write a check for equity investments in your company, carefully consider what type of investor they are and how their values align with yours.
Look at past entrepreneurs that have worked closely with this firm to see if they actually helped them grow or not.
While many great firms around today look for investment opportunities like these, don’t let yourself get seduced by a brand name because, ultimately, people matter more than perceptions.
If you are unsure where to start your search, companies like Fairmint, Capbase, and Capyx offer both investors and entrepreneurs a platform to interact. Fairmint, for instance, sets itself apart by offering potential investors a platform and support, especially with information and guidance on equity investments, risk management, and so much more.
- The value of your business
One of the first steps to raising equity investment for your business is considering what it’s worth. You’ll want to show investors that you have a high value and make sure they get their money back plus interest, so do some research into how much other businesses with similar values are going for on the market right now.
Determining how your company is valued can be a daunting task. The key drivers to getting to the valuation may vary from industry sector, market conditions, and more.
- What are your goals for the funds?
If you plan to use the equity investment for expansion, acquisition, or other specific goals of your business, then it will be important to articulate these goals.
Investors want to know how they can have a return on their money and what that means specifically in terms of your company’s future.
- Consider how much money you need before raising equity investments
Raising money is challenging but so important. You need to find the perfect balance between raising enough and not overdoing it. This is crucial when deciding how much equity investment you’ll be accepting from investors.
This decision can shape your future company in tremendous ways; will they own a majority of shares or just make up some numbers? Or even worse: are they going to have any say at all with what goes on regarding decisions being made?
Be careful before offering them too many rights – especially if you’re trying for an IPO down the line.
- Timing
If you are looking for a way to ensure that your business is successful, don’t wait until it’s too late.
Asking yourself, “is this the right time?” before raising equity investments could be essential in ensuring success down the line. If it turns out not to be, then you might only get one shot at making an impression on investors and letting them know what they can expect from their investment with your company.
Many factors go into deciding the perfect time to raise equity investments, but there is one thing you need to be sure of: it has got nothing at all to do with how badly your business needs money.
What you think matters most in convincing investors will not convince them; they want a well-organized and financially secure company before investing their hard-earned cash.
- Product-market fit
Raising equity investments can be a risky business. You want to make sure that you are not only working something successfully before asking for more money but also have a product-market fit.
Without this, there is little chance of success, and investors will likely get angry about the lack of profitability in your company. This will, in fact, discourage them from investing their own funds into it as well.
Conclusion
The equity investment process can be a complex one, but the key takeaway is that you need to consider all of these factors before moving forward. We’ve outlined six essential considerations for you to consider when seeking out equity investors, and we hope this article has been helpful in your decision-making process.
