What you need to know about raising capital for a new business



Business, like life, is all about yin and yang. This story has two dominant players, who are interdependent in raising the capital needed to start a start-up.

The first is, of course, the entrepreneur. By definition, a “person who sets up a business or businesses, taking financial risks in the hope of making a profit”.

The second is the investor: “a person or organization that invests money in financial projects, goods, etc. in the hope of making a profit ”.

These two actors could be called the yin and yang of any start-up, reflecting the “concept of dualism of ancient Chinese philosophy, describing how clearly opposing or opposing forces can actually be complementary, interconnected and interdependent in the natural world. , and how they can be complementary, interconnected and interdependent in the natural world. arise because they are interdependent ”.

Business yin and yang

The yin, or dark side, is associated with anything harsh, negative, cold, and wet (in business, some suggest it’s the investor).

Meanwhile, the yang, or bright side, represents its direct opposite: soft, positive, hot, and dry (aka the entrepreneur).

This potential relationship is always somewhat ambivalent. Each needs the other: as a source of funds to grow or as a place to invest. However, the entrepreneur takes financial risks in the hope to make a profit. The investor, for his part, has a fixed wait to make a profit.

So how does the entrepreneur (yang) approach this dead end and approach the challenge of raising capital for a new business?

Unite opposing forces

Having reached the fundraising stage, the entrepreneur must have passed the “talk talk” stage. They should now start walking.

The first step is usually a detailed business plan.

In reality, it is often the graveyard of many great new ideas when reduced to the printed word.

If the idea were to survive, however, this business plan would serve to unite entrepreneur and investor towards a mutually beneficial goal.

Climb the capital ladder

For many people in business, a local bank branch is a common place to start. Yet you learn the fastest that for start-ups, banks are more like repossession agents than lenders. The high security requirements usually scare off the entrepreneur.

The next port of call is one of known commercial success. Almost all budding entrepreneurs have done a lot of networking. Proudly, they present their detailed business plan. The answer often falls into one of three categories:

  • Shakespeare: “Neither a borrower nor a lender, for the loan often loses himself and his friend”, they quote Polonius from William Shakespeare Hamlet. They don’t risk losing both their money and your relationship.
  • Sponsors: Quotes from this line of The Godfather films: “It’s not personal… strictly commercial”. For them, your numbers don’t add up.
  • “It’s not you, it’s me”: despite their assertions, it becomes clear that they just don’t want to invest in your Start.

Having failed in the outside world, potential entrepreneurs seek comfort closer to home. Family businesses make up 70 percent of Australian businesses and employ around half of the country’s workforce.

Meanwhile, the so-called “Mommy and Daddy’s Bank” is Australia’s ninth largest lender. Parents lend, donate or take out record amounts for deposits to help their adult children buy their first home.

However, lending for a start-up is a whole different story. It’s considered a much riskier investment despite – or perhaps because of – their intimate knowledge of the founder and his skills.

Some do. What do Bill Gates, Jeff Bezos, and Elon Musk really have in common? Of course, they’re all tech billionaires, savvy innovators, and successful entrepreneurs. But there’s something else: they all had families that helped them get started.

The Boot Straps Bank

If all else fails, there is always the Boot Strap Bank.

The origin of this descriptive phrase is not known. It of course refers to the boots and the straps that some have attached to help the wearer put them on. And the imaginary feat of getting off the ground by pulling on your bootstraps.

This often involves a combination of personal savings, credit cards from the same bank that declined to provide a business loan, and perhaps vendors who need the business offering some credit.

The lesson entrepreneurs ultimately learn is that there is no one right answer to the question, “What do you need to know about raising capital for a new business?” “Every entrepreneur and start-up is different.

Remember, business is business and many yins will not be a borrower or a lender!

Written by Alan Manly.

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