Thread by @iamkoshiek

Running a small company or need cash for your side hustle? Here's the ultimate capital raising guide [Thread]

Ways to raise capital:

1. Bootstrapping
2. Bank Debt
3. Working Capital/ Revolving Facilities
4. Angle Investors
5. Venture Capital
6. Private Equity
7. Crowdfunding
8. Government Agencies
9. Get a Business Partner
10. Funding competitions

1. Bootstrapping

The cheapest way of funding. Build the company with savings & family contributions. Privilege is a massive factor in getting off the ground.

Jeff Bezos' parents ploughed $245k into his e-commerce startup. Bill Gates' parents funded his founding company.

2. Bank Debt

Banks take credit risk which means they're often fucking conservative. They will focus on your ability to repay the debt & pricing depends on the probability of you defaulting*

*Pro-tip: don't use bank funding to frequent strip clubs, use shareholder money instead

3. Drawdown facilities

Probably the most underused, useful type of funding. You can borrow against the assets of your company for really cheap. Most companies have short-term liquidity issues

I have worked on deals where these type of facilities were used to buy small companies

4. Angel Investors

Angel investors use their own money in return for equity or hybrid equity. You don't need to pay them back if you go bust BUT you could end up sacrificing plenty of equity early on. The best angels also offer up their network, relationships & experience.

There's an avalanche of companies who never make it out the hood... but every now & again there's a life changing unicorn. Here's the returns from Uber early stage seed investors on IPO.

5. Venture Capital

VCs usually write bigger cheques than angel investors, prefer companies with a bit of a track record & many will want a controlling stake early on.

VCs are drowned in opportunities. Getting time in front of one is hard, getting them to invest is harder.

6. Private Equity

The heavy hitters. You have to be pretty sizeable/ established. PE will usually get in for at least 5 years & use clever structuring + leverage to really juice out their returns (20-25% a year).

There's a lot of dry powder (capital, not cocaine) these days.

7. Crowdfunding

Literally, a crowd of investors funding your project. Figure out what you're giving up. Is it a donation? Is it rewards based? Is it equity- based? (Are you giving up ownership?)

Kickstarter, GoFundMe, Indiegogo are all great platforms to check out.

8. Government Agencies

Dedicated funds for small companies (usually debt funding).

Unfortunately, this often ends up being "who you know" more than anything else. Red tape, ambiguity in company selection criteria & long timelines means it isn't always a preferred option.

9. Get a business partner*

Find someone with skills, abilities and relationships you don't already have. It's better to have a partner bring in less capital but has relentless work ethic, far more experience and can open the right doors.

*Use Tinder here

10. Funding competitions

Dragon Den style pitching competitions are becoming much more popular. It's a great chance to sharpen up your pitch and find out where gaps are.

Pro-tip: you want to protect your IP & may want to consider not giving out too much info early on.

Questions to ask when raising capital:

- How much is this costing me? (Most important!!)
- What's the % dilution? (how much equity am I giving up?)
- Can I leverage up further? (do I have breathing room?)
- What happens if this goes bad? (What's the most you stand to lose?)

If you can - don't give up too much equity!!

It sounds perfect right? Someone writes you a blank cheque for 30% of the business - no repayments needed!

In successful businesses, giving up equity stakes very early on tends to be the MOST expensive form of raising capital.

I have 99 problems but a pitch ain't one!

When you're pitching for funding:

- Be 100% clear what the proceeds are being used for
- It's easier to invest on a track record rather than hopes & dreams. Show what you have actually delivered.
- Be realistic!

Know what different institutions/ investors looks for!!

Banks look at interest cover & debt service ratios. Private equity looks at annualized returns and exit multiples. Angel investors may look at payback multiples.

Get familiar with terms like TVPI, DPI, IRR, WACC & BBW.

The wave of cash burning companies fetching billion dollar valuations has inspired a wave of entrepreneurs looking to secure massive paydays on ideas alone.

Everyone has ideas. Everyone has the next best thing.

The best way to secure funding?

Show you can survive without it.

Shout-out for making it to the end. I appreciate you!

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