Leverage your company’s growth

Leverage your company’s growth

Category:Business Management

Entrepreneurs and growing businesses often face their first hurdle in obtaining financing. It is common for them to initially think about using their own resources, but this can be expensive and is not always possible. There are viable alternatives, such as private investment funds and angel investors, that can provide the necessary resources for the growth and consolidation of companies. Companies like vFinance, SequoiaCap, and AAC Capital Partners have been sources of funding for successful companies like Yahoo, YouTube, and AdMob.

Let’s look at the following example:

The company Kula, a virtual learning platform for boys and girls in Latin America, contacts an angel investor with experience in the technology sector, hoping to obtain financing in the amount of $1 million dollars, which it hopes to use to expand the offering of courses and educational content on the platform. After carrying out an analysis of the business idea, the angel investor offers the following conditions, an Interest rate corresponding to 20% per year, with a term of 5 years and a rate of return of 40% on the invested capital.

Financing process:

Once the angel investor becomes interested in the Kula company after knowing its value proposition and growth potential, a due diligence of the company is carried out in order to evaluate its financial and operational viability. This example illustrates how financing with an investor can help a company achieve its growth and development objectives. In the case of Kula, financing from an angel investor allowed the company to expand its offering of courses and educational content, which has contributed to its growth and success.

Other options consist of making use of the stock market, through an issuance of shares or debt securities, for which the support of an investment bank is required, who will be in charge of building the prospectus and preparing the process prior to the public offer. However, other elements that can influence the success of financing with an investor must be considered, such as the quality of the founding and management team of the company, the growth potential of the company, the clarity and detail of the business plan and the company’s ability to meet the terms of the financing.

Regardless of the option used to obtain financing, there are a series of preliminary requirements that must be satisfied to obtain resources. Initially, a business plan is requested in which the conditions of the business and its corresponding financial analysis are detailed. This analysis must include at least the following elements:

• Projections
• Cash flows
• Use of resources
• Profitability and value generation indicators

This analysis is carried out using tools provided by the companies that provide support in the financing search process. Once this stage is completed, it will be necessary to prepare a presentation in which the:

This analysis is carried out using tools provided by the companies that provide support in the financing search process. Once this stage is completed, it will be necessary to prepare a presentation in which the:

• The mission
• The work team
• The problem
• The solution
• The competition
• The size of market
• The business model

In such a way that it allows to illustrate and motivate potential investors to make their investment in the project.

Additional considerations

• Before opting for any of the initiatives, make sure that your business can be understandable even to a 5-year-old child. This fact will make it easier for anyone to understand.
• Properly quantify the capital needs for your business. If it’s a few thousand dollars, it’s likely that many venture capital firms won’t consider it and you’re better off turning to an angel investor.
• Issuances of shares or private debt securities are usually carried out to finance the growth of an already established company, not by entrepreneurs.