If you are a rapidly growing business or are planning for a large growth phase, sourcing of capital is paramount to your success. Unfortunately, there are more thorns and thrones in the finance world then there are in the hit series “Game of Thrones”. The purpose of my article is to help you put capital funding contingencies in place, to realise the opportunities that will come your way.
Growth can be fuelled through debt or equity capital (selling of company shares). Debt capital is by far the best option for a growing business, providing it can easily be serviced. That means having a high degree of long-term co-alignment with the financial intermediary of choice.
Co-alignment with your capital provider is the single most important thing! If it doesn’t exist it will be costly, whether it be through terms that hinder growth or lawyers being paid. Capital that is injected via equity, should be a last resort if a business is at an early stage of its growth (otherwise equity will be sold at a discount relative to future value). This is also known as unnecessary shareholder dilution. The last thing you need is undue influence from investors, your self-sovereignty is of importance!
Most investment firms would hate me saying that, as they often aim to prey on business owners that are desperate. In my mind that isn’t true co-alignment. There is another way.
You need to be aware that the nature of investor capital of the financial institution you select, will determine the degree of co-alignment they have with you.
A growing business requires what we refer to as “patient long-term capital.” Intermediaries that deal with family office clients that are of high net worth are the best ones to provide this! I’ll provide the evidence in future.
It is imperative you de-risk your business to receive a lower cost of capital. You can do this in a few ways;
The type of capital you require and the instrument used to provide it will vary on a number of factors. The reality is that most growing businesses will have a blended solution.
Below is a list of some solutions:
Alternative sources of funds are:
Tarek Omar, Head of Strategic Ventures Royce Stone Capital