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I’ve been approached by a venture capitalist who wants to help grow my business by taking a controlling share of 51% – I do not know this person and am unsure. What are the pros/cons?

When Venture Capitalists approach you for business opportunity.

Entrepreneur

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Taking on a business partner, especially one who will have the majority shareholding is a big step.

To do so with a person you do not know is very risky, unless you have explored this in detail and satisfied yourself that this investment is good for you and your company.

You have not said what role this investor plans to take in the business, but even if he is planning on being a background source of finance only, you will have to interact and share in the strategic decision making with him, especially in the key area of growing the business, which is the reason for the investment. Will you be able to forge a sustainable partner relationship?

You will need to clarify the extent of control and involvement that the investor intends, and whether that involvement will add expertise or simply change your way of working, and whether you are able to accept whatever degree of control he chooses to exercise.

He will have 51% of the shareholding and so will have the ability to elect the directors, and through them set policies and strategy, and hire and fire the CEO, so he has wide powers if he chooses to exercise them. It is vital to check what has happened with previous investments made by this venture capitalist, and get feedback from entrepreneurs he is in partnership with.

Finally you need to be very clear on what his motivation is for offering this investment, and your motivations for considering it.

  • Does this fit your business and personal strategy?
  • Is there an element of quick fix?
  • How does the long term vision of your company change, and are you OK with that?

If you (or he) is trying to fix a short term problem, or just seeing the immediate additional capital but entering a long term partnership, you may be doing the wrong thing. A divorce between business partners can be as traumatic as a divorce between spouses, so tread very warily.

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Funding

What do I need to do in order to get a successful crowd funding campaign?

Advice on getting the gold you need for your crowd funding campaign.

Ambassador Tal Edgars

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I recently read through crowd funding and though this might be of benefit to me. What do I need to do in order to get a successful crowd funding campaign?

70 percent of most crowd funding campaigns never reach their funding laid out plan. If you only reach a portion of your desired pledge amount all donated funds are then returned to investors once your campaign date is up. Do your homework and make your campaign count.

To get the best out of your campaign, I would strongly advise you do the following:

  1. Lay out your plan way in advance
  2. Keep a proper and well-articulated business plan
  3. Create a compelling story.
  4. Use the social media and start a social media campaign
  5. Frequently promote your fundraiser, connect and interact
  6. Dish out rewards and incentives
  7. To go viral, go for educative, informative and entertaining videos
  8. Be more than unique and creative as more exposure will translate to more potential pledges
  9. Choose the right crowd funding site for you.
  10. Know and understand your end target audience

 

 

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Funding

Where can I turn when banks are not helping?

Getting bank finance for my restaurant is almost impossible.

David Lewis

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Getting bank finance for my restaurant is almost impossible.  How else can I access the funding that I need?

Most small businesses will experience a cash flow challenge at some point during the next 12 months and raising capital from traditional banks is becoming a real challenge. Conservative lending policies and onerous application processes mean that finance applications can take up to twelve weeks or longer.

Banks require significant securities, which many business owners are unable to meet. In short, banks are making it very tough for small businesses.

The business cash advance

For businesses that accept credit or debit cards as a form of payment for their goods and services (termed merchants), the business cash advance is now available as alternative source of funding.

In simple terms, a business cash advance offers the merchant an upfront advance to buy a discounted amount of future business turnover.  For example, you may be advanced R80,000 for R100,000 of future turnover, so the fees can be easily calculated as R20,000.

The payback is an agreed percentage of your turnover, paid daily until the full amount is paid across.  Payback increases and drops with your business turnover and the smaller daily payments are often easier than monthly fixed instalments.

Quicker turn-around and more accessible

Comparing it to a bank loan, the business cash advance is more accessible, operates over a shorter term and requires no personal security.  It is also much faster, typically available within two weeks.

The advance amount is based on historical credit and debit card sales and pay overs are daily.   The costs are fully transparent and there are no penalties for late payments or extended payback.    However, accessibility, flexibility and convenience come at higher cost than traditional bank lending products.

As with any financial product, it is important that the benefits gained from using the money are more than the costs, so it is important to have a good purpose for the funding and carefully consider the available options.

Over the last three years, the business cash advance has becoming more main-stream and this funding is used by business with a relatively high card turnover, such as restaurants, retailers, beauty salons, supermarkets, convenience stores etc.

What to use the advance for

The advance is typically used for a business opportunity, such as expansion, new stock, new equipment, marketing etc.  Alternatively, it also offers through a difficult trading period or to cover an unexpected expense such as equipment failure when the money is needed quickly.

Small businesses are a vital part of the South African economy, contributing over 65% of South Africa’s employment and over 50% of GDP – accessing funding is imperative for these businesses to survive and grow.

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Funding

Am I stupid to turn down a VC investor?

Bootstrapping your business initially will pay dividends down the line.

Michelle Goodman

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I’ve started my own business two years ago and I’ve recently been approached by venture capitalist investors. While I could really use the funding, I’m reluctant to give away a large portion of my business at this early stage. What should I do? 

While it’s exciting to be approached by investors at any stage in your business, in the early years it might be better for the business to keep it small, keep your overheads low and bootstrap your venture as much as you can. This not only allows you to build a viable business and product offering at your own speed, it means you can to do without creating a huge amount of debt.

By building a sound and profitable business model from the outset, you will attract more attractive funding offers down the line.

Read the full article here.

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