Issue:                      #3 - 13 November, 2007
Article Word Count: 572 words
Time to read:          Approximately 3 minutes 

Give yourself a very short break and read it now. 
You’ll enjoy it. 

One of the big issues that emerged from the survey we conducted was working out if equity investment was really the way to go.

Firstly, I'll assume that you want to get more money into your business. So here are some issues to consider...
- do I need debt or equity?
- What types of equity are available?
- When is the best time to get equity capital?

Do I need debt or equity funding?

It all comes down to the cost of money. Think of money like anything else you might buy. When you buy a car you shop around for the best deal. Well, you should treat getting money exactly the same. Banks and Investors are 'selling' money at various prices. And some money suppliers will value add with advice and contacts.

1. Debt Funding
There are many different forms of debt funding.

The 3 F's tend to be a first port of call - friends, family and fools. Your rich uncle may take a liking to your idea and be prepared to back you into it. Generally, these people are very sympathetic and are not in it for the money. They want to help you make a start. Truly angels.

A secured loan is the cheapest money you can access. The banks don't really care about your business (regardless of what they might say) they just want security over your house, boat, children and the cat. So, secured debt is cheap money.

You can also lease, factor your invoices, get unsecured loans, use bartercard systems, etc. All these options are more expensive than secured loans but they are cheaper than equity.

Don't forget using your credit cards for money. A colleague of mine applied for every credit card he could and maxed out on the credit limit before he gave up his job to start a business. He could get his hands on $97,500 instantly. That was very smart.

Instant cash for emergencies! No security, no questions asked when he needed that cash, a great backup in times of cash flow crisis. Mostly, credit cards are cheaper than equity.

So, go out and get every $$$$ you can through various debt sources because it is the cheapest money and you can run the business the way you want to. The downside:
- you have to pay it back at regular intervals
- the amount is tied to the assets you own
- it reduces your flexibility.

2. Equity Funding
There is a price for equity. You exchange shares in your company for the money. So the capital you raise is linked to the value of your company.

Before looking for equity make sure that you have exhausted all opportunities for debt funding. Equity is more expensive and you will be taking on a business partner. The investor will own a share in your business and they will want to have a say in how it will be run.

By it's very nature raising equity funding is more complex, it takes longer to do (endless meetings and cross checking) and there is lots of paperwork.

There are different ways to raise equity ranging from angel investors to a public listing on the stock exchange. It all depends on the stage of your business, the industry and your own preferences.

In the next Entrepreneur Zone I'll talk more about why and when you might think about raising capital from either an angel investor or a venture capital company.

Till next time.

Cheers


Gail Geronimos
Co-Founder

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