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Venture Capital

Fitbit And Adidas Know Something That Venture Capital Doesn’t

Your startup might accelerate growth by forming a strategic partnership with established businesses — not just VCs.

Dan Lauer

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The media would have you believe that securing venture capital support and funding is the epitome of “making it” in the startup world. But, leaving aside the influx of much-needed capital, what many fail to realise is that VC partners aren’t always a good strategic fit.

Take Fitbit, a company that VCs poured millions into just a few years ago. Unfortunately, the funding couldn’t stop Apple from overtaking Fitbit in the wearable market last year.

So, when Fitbit was looking to light a spark under its fledgling line of smartwatches earlier this year, it didn’t tap another VC. Instead, it turned to Adidas, the shoe and apparel giant known for reinventing itself.

The product – the Adidas-branded Fitbit Ionic – dropped at the end of March and seems to have reinvigorated interest in Fitbit’s Ionic model, which made its tepid debut last year.

Not only did Adidas lend financial support to Fitbit, but it also lent the smaller company the fashionable, influential fan base that Adidas has carefully cultivated in the past few years.

Even though the collaboration hasn’t yet propelled Fitbit past Apple in the smartwatch space, the lesson here is clear: Your startup might accelerate growth by forming a strategic partnership with bigger, established businesses — not just VCs — to access financial backing, mentorship and expert guidance.

The sum is greater than the parts

Companies across a wide range of industries, from technology and retail to media and telecommunications, are investing in startup partnerships. In 2014, Wells Fargo created its own startup incubator to nurture new clean-tech businesses in the marketplace. The incubator, known as IN2, has invested nearly $6 million in 20 companies since its inception.

Related: Developing Partnerships With Fintech Innovators

In successful collaborations, the relationship is symbiotic, with many layers of engagement. We saw a successful example of this at the Ameren Accelerator in St. Louis. Rebate Bus, one of the startups in our 2017 cohort, used the investment and mentorship to get off the ground and scale growth.

During its accelerator phase, Rebate Bus received funding and mentorship and has since secured a partnership with a large company to run a 90-day trial. The large company, for its part, added Rebate Bus’s valuable new technology to its arsenal to stay competitive in the marketplace.

One unintended benefit was that Rebate Bus added five new jobs to the St. Louis market, as well.

In addition to providing financial support, collaborations with bigger companies provide an opportunity to tap into a deep well of knowledge and senior-level management expertise that only a more established brand can provide.

And, because the larger company will likely share a common mission with your startup, it will be concerned about more than just return on investment – something you can’t always say about a VC.

Cultivating a successful partnership

Just like any healthy relationship, this sort of collaboration won’t be successful without care and attention. Here are three ways to build and sustain successful relationships with larger companies.

1. Don’t use a partnership as a crutch. Business relationships are fragile. In fact, statistics from The Association of Strategic Alliance Professionals show that nearly half of business alliances fail. That’s why it’s extremely important to set relationships up for success from the outset.

One of the best ways to do this is to approach the partnership as only one facet of your overall strategy for your business’s growth, not its make-or-break point.

While corporations want to create an environment that spurs growth for everyone, they don’t want startups to become dependent on them. Show potential partners that you can stand on your own two feet and leverage a partnership to everyone’s benefit.

Related: The Foundations Of Growth

2. Don’t paint your partnership into a corner. So many venture-backed startups expect to see 12 years of growth in 12 months. These impossible expectations can hamstring a business partnership from day one. Instead, set time lines and goals with your potential partner that are specific and challenging, but also realistic.

Research from the American Psychological Association shows that setting these types of goals led to higher performance 90 percent of the time in the companies examined.

It’s critical to set these expectations early to ensure you and your partner are aligned from the start. The good news is that established companies whose sole purpose for a partnership isn’t ROI should be more open to realistic financial benchmarks.

3. Practice reciprocity. For startups seeking investment, landing capital can begin to feel like the endgame. But remember: Established companies are expecting something out of a partnership, too.

Older companies, meanwhile, are always looking for fresh perspectives; and startups usually have innovative ideas to contribute. It’s important to clearly communicate what each partner brings to the table.

Related: Win-Win: Strategically Partner With Your Top Competitors

Take the career-finding solution PathSource, for example. Co-founder and CEO Aaron Michel didn’t even consider partnering with a company that didn’t share PathSource’s goal to help people find better jobs. That’s why the company finally landed on a partnership with the GED Testing Service, the country’s high school equivalency testing administrator.

As Michel wrote in The Next Web: “A great relationship is a balance of give and take. When you approach a potential partner, don’t bother contacting them unless you know why they would want to speak with you. Know what you have to offer them.”

Legacy companies have a tremendous amount to contribute to entrepreneurs; often, these companies have even more to offer than a venture capital firm.

Related: 5 Things to Do Before Saying ‘I Do’ to a Business Partner

When both partners know what they want out of the relationship and know what they’re willing to give, the end result for both can be more lucrative than what each would reach on his or her own.

This article was originally posted here on Entrepreneur.com.

Dan Lauer is the founding executive director of UMSL Accelerate, a St. Louis-based initiative that fosters innovation and entrepreneurship in and outside the classroom and helps bring concepts from mind to market.

Venture Capital

7 Questions A Venture Capitalist Will Ask You Before Investing In Your Business

Are you ready for external financing?

Rob Heath

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It’s no secret that the number one cause of business failure is running out of cash. However, an injection of cash alone does not necessarily mean a business will be successful. Our role as a VC is to identify businesses that have a unique mix of skills and offerings that, when mixed with the right capital partner, are in the best position to succeed.

These businesses are generally run by entrepreneurs that seek to have an impact on some sector of society and have the drive, foresight and emotional intelligence needed to succeed. Finding businesses run by entrepreneurs who exhibit these qualities is a big part of our secret sauce, but equally, it’s important that we can work with, collaborate and align interests with these entrepreneurs, so that success ultimately results in both founders and investors alike realising profits and investment returns.

Related: The Truth About Venture Capital Funding

Understanding what VCs look for

After identifying businesses with potential, we spend a lot of time working with the entrepreneurs we’re considering investing in, asking questions like:

  1. Are we funding a business, an idea, a lifestyle or a big dream?
  2. Who are the clients, how did the business acquire them and why do they use their services?
  3. Does the business have a competitive advantage that’s difficult to copy?
  4. Can the business scale?
  5. And finally, is the founder and entrepreneur ready?
  6. Are they prepared to sell some of their company and work with external partners? Do they listen, seek and take advice?
  7. And when (not if) the company runs out of money, are they the first employee to forego their salary?

If you want to prepare yourself for a capital raise, these are the questions you should be asking yourself in preparation.

Right partners at the right time

Starting a business is hard. Partnering with the right investors with aligned interests is crucial and being comfortable in answering the above questions is just as important.

If answering these questions makes you uneasy in anyway, perhaps you aren’t ready for venture capital financing. Like most things in life, success comes down to people, and partnering with the right people and investors at the right time, is key. Not all entrepreneurs are comfortable working with partners. Understand what you want from a funder before you start looking for investors.

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Company Posts

Spartan Has Financing That Is Designed For Your Business

The SME landscape is fast and flexible. It requires financing that understands how entrepreneurial businesses operate. Through its unique processes and assessments, Spartan’s finance solutions are geared to do just that.

Spartan SME Finance

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It takes an entrepreneur to know entrepreneurs, which is why Kumaran Padayachee and his team at Spartan are dedicated to financially backing an often under-serviced sector: SMEs.

“We’re fast, we’re flexible, and we’re understanding,” says Kumaran. “Every single person who works here is SME-centric. We hire for fit, looking for empathy and alignment in every position. All of our processes and assessments are done with empathy and understanding towards SMEs.”

Becoming funding ready

Thanks to these systems, processes and the team’s unique way of assessing SMEs, Spartan typically grants finance within seven days, although the fastest approval has been six hours, with the longest 15 days.

“How quickly we can approve finance is determined by how prepared the business owner is,” explains Kumaran.

“Do they have all their basic documentation ready? These include financials, management accounts, debtors age analysis and creditors age analysis. From a working capital context, this information makes it easy to assess the health of the business. Every business owner and financial director should be on top of these figures.”

Related: Alternative Finance – Filling The Gap

Finding a funding fit

Not every business needs funding. Some can grow organically and draw on their own cash reserves. Others choose an equity route.

Spartan is a debt funder. However, even as a debt funder, the team’s aim is to back entrepreneurs and help them grow their businesses. They evaluate what the finance will be used for, and if the return is greater than the repayments.

“There are numerous ways that finance can be applied incorrectly by SMEs,” says Kumaran. “One of the first flags we look for is debtors age. If the industry norm is payment in 30 days, but a business is typically paid by its clients in 60 or 120 days, then we know there is something wrong with their internal processes. Either the company is too shy to be assertive with clients, or it lacks the capacity or capability to invoice clients and collect cash efficiently. Either way, the result is a shortage of cash.

“Business owners in this situation apply for a loan in order to be able to pay the bills, when they should be reviewing their own business, pulling one or two levers, and improving their cash flows.

“A customer project or contract is an example of an expansionary and positive need for finance. These cases are ideally suited to bridging finance. The problem is that there’s a lead time gap. You need to start the project, spend cash to hire people or purchase equipment, build internal capacity, deliver on the project and then the customer only pays you. Working capital and bridging finance allows the entrepreneur to do just that, and the company grows as a result.”

Bridging finance, in particular, is high risk and requires a large amount of flexibility, which is why more traditional funding institutions shy away from it. Spartan, on the other hand, offers revolving bridging loans to customers the team has worked with. “We understand this space, and our aim is to support the entrepreneurs within it,” Kumaran concludes.

Related: Business & Leadership Lessons from Kumaran of Spartan

Alternative finance solutions

Spartan is a 36-year-old Non-Bank Finance Company — that specialises in financing Small and Mid-sized businesses by providing:

  • Growth Finance [structured finance for expansion]
  • Specialised Asset Finance [equipment/machinery/technology/software/office fit-outs/energy/etc.]
  • Working Capital Finance [bridging finance & medium term loans].

Bridging Finance

Bridging Finance is available for one to three month terms and is ideal for contract or project-based businesses. It is a solution that assists businesses with solving cash flow issues due to growth related challenges in their business and is either for a once-off need or for revolving business use.

Spartan is an Authorised Financial Services Provider 47631 and Registered Credit Provider NCRCP8669.

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Venture Capital

3 Top Tips SMEs Should Be Aware Of When Accessing Funding

Darlene Menzies weighs in on the top three things you should consider when accessing funding.

Darlene Menzies

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1. Applying for credit facilities

Apply for credit facilities (such as a bank overdraft or revolving credit facility) when business is going well, which is when a bank is more likely to approve it. This also means you will have the money immediately available if you hit a cash flow challenges. Don’t wait until the business has hit a cash cliff to apply, as you will be less likely to qualify or be in a position to negotiate the best rate/terms.

2. Have critical documentation easily available and kept up-to-date

Create a secure electronic folder, preferably stored online, that house all of your statutory and financial documentation that funders will request from you when you apply for finance.

This includes up to date copies of your company registration documents, shareholder agreement and register, certified copies of member/director IDs and marriage certificates, tax certificate, signed customer contracts, business plan, latest financial statements, up to date management accounts etc. SME lack of finance readiness (i.e. having their documentation available for funders) is a key constraint to being able to access funding.

3. Know your credit score, both your personal credit score as the business owner and your business’s credit score

Our report shows that 61% of entrepreneurs applying for finance don’t know their credit score, yet this is one the primary evaluation components used by funders to determine the risk of lending money to the business.

It’s important that SMEs request their credit scores and address any issues that are negatively affecting them. You are permitted one free credit record per annum from the Credit Bureau. Take time to learn about how the credit system works.

Access to finance

“There are a number of research studies that confirm the link between access to finance and business growth, showing that increased access to funding increases revenue and job growth in SMEs.”— Darlene Menzies, founder of finfind.co.za

Read next: Government Funding And Grants For Small Businesses

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