Contrary to popular belief, business plans don’t generate business financing. True, there are lots of types of financing options that need a business plan, but nobody invests in a company program.
Small business financing misconceptions:
Venture capital is an increasing opportunity for funding companies. In fact, venture capital financing is quite rare. I will explain more later, but suppose that only a very few high-growth programs with time-management teams are enterprise opportunities.
Bank loans are the most likely option for financing a new company. In fact, banks do not finance business start-ups. Banks are not supposed to invest depositors’ money in new companies.
Business plans sell shareholders. In fact, they do not well-written and persuasive business plan (and pitch) can sell investors on your business idea, but you are also likely to have convince those investors that you’re worth investing in. When it comes to investment, it is as much about whether you are the ideal person to conduct your business as it is about the viability of your business idea.
I am not saying you should not have a business strategy. You should. Your business plan is a vital part of the financing puzzle, explaining precisely how much cash you need, and where it is going to go, and how long it will take you to make it back. Everyone you speak to will expect to see your business strategy.
But, based on the type of business you have and what your market chances are, you need to tailor your financing search and your strategy. Do not waste your time searching for the wrong sort of financing.
Where to look for cash
The process of searching for cash must match the requirements of the corporation. Where you search for money, and the way you search for money, depends on your organization and the type of money you require. There’s an enormous difference, as an instance, involving a high-growth internet-related company searching for second-round venture capital and a community retail store looking to fund another location.
In the subsequent sections of this guide, I will talk more specifically about different kinds of investment and financing available, to help you get your business financed.
1. Venture capital
The work of venture capital is often misunderstood. People today talk about venture capitalists as sharks-because of the allegedly predatory business practices, or sheep-because they supposedly think as a flock, all needing the very same sorts of deals.
This is not true. The venture capital business is merely that-a business. They shouldn’t take more risk than is absolutely necessary to generate the risk/return ratios which the sources of the funding ask of them.
Venture capital should not be considered as a source of financing for any but a very few exceptional startup businesses. Venture capital can not afford to invest in startups unless there’s a rare mixture of product opportunity, market opportunity, and proven management. A venture capital investment should have a reasonable prospect of creating a tenfold increase in company value within three decades. It needs to concentrate on newer markets and products which can reasonably project raising sales by huge multiples within a brief time period. It ought to work with proven managers who have coped with successful start-ups previously.
If you are a possible venture capital investment, then you probably know it already. You’ve got management team members who’ve been through that already. You may convince yourself and a room full of smart people, your company may grow ten times over in 3 decades.
In case you must ask whether your new business is a potential venture capital opportunity, it likely isn’t.
This organization includes the majority of the California venture capitalists based in Menlo Park, CA, that’s the headquarters of an remarkable percentage of the country’s venture capital companies.
Pratt’s Guide to Venture Capital Resources is an yearly directory available online or in print format.
Venture capital isn’t the only source of investment for startup companies or small businesses. Many organizations are funded by smaller investors in what’s known as”private placement.” By way of instance, in certain regions there are groups of potential investors who meet occasionally to listen to proposals. Additionally, there are wealthy people who sometimes invest in new businesses.