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Know your goals and options
2
Understand your investors' needs and preferences
3
Negotiate the key terms and conditions
4
Document and finalize the deal
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5
Maintain a good relationship with your investors
6
Here’s what else to consider
Financing your business can be a complex and challenging process, especially when you need to balance the interests and expectations of different stakeholders. Whether you are seeking equity, debt, or a combination of both, you need to structure a deal that meets the needs of your business and investors. In this article, we will explore some key factors and tips to consider when designing a financing deal that works for everyone.
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- Million Kibret Global Financial Executive, Managing Partner at BDO Ethiopia
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- Giovanni Sisinna 🔹LinkedIn Top Voice: Generative AI, Artificial Intelligence, LLM, Management Consulting, Portfolio-Program-Project…
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- Alfredo Llosa Carrión DIRECTOR Liberty Seguros
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1 Know your goals and options
Before you approach any potential investors, you need to have a clear idea of what you want to achieve with the financing and what options are available to you. For example, do you need the funds to grow, scale, or pivot your business? How much capital do you need and for how long? What are the risks and opportunities associated with your business model and market? Depending on your answers, you may have different options for financing, such as angel investors, venture capitalists, banks, crowdfunding, or bootstrapping. Each option has its own advantages and disadvantages, such as the amount of control, ownership, and debt you will have to give up or take on.
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- Million Kibret Global Financial Executive, Managing Partner at BDO Ethiopia
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Striking the balance between debt and equity to finance businesses can be tricky. Equity provides time for businesses to grow to fruition, but it takes a portion of ownership interest away from the founders, thereby implying losing control. On the other hand, with debt comes cost of capital, which could be a significant burden for startup companies. Therefore, founders should be able to forecast the cash generating capacity of the enterprise and its ability to finance debts before deciding on the option of debt financing. Some enterprises, including traditional heavy industries, take time in the investment process before they start generating significant cash inflows. In such cases equity financing could be preferable.
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- Giovanni Sisinna 🔹LinkedIn Top Voice: Generative AI, Artificial Intelligence, LLM, Management Consulting, Portfolio-Program-Project Management, Technological Innovation🔹AI Advisor | Director Program Management @ISA | Partner @YOURgroup
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💡 A deep understanding of financing nuances significantly shapes a business's trajectory. 🔍 Financial AssessmentAssessing financial health is vital, analyzing cash flow, profit, debt, and metrics. It guides funding decisions.📈 Growth ProjectionAccurate growth projection is crucial, including market analysis, revenue forecasting, cost assessment, informing financing choices.🔄 Financing FlexibilityEvaluate financing flexibility; venture capital may require equity, loans have repayment obligations. Assess repayment schedules, rates, and covenants.📌 Aligning financing with your needs demands understanding your financial position, growth potential, and flexibility. It benefits your business and investors.
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- David H. Lloyd Consortium Aviation | Finance and Operating Partners
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Before you go out or have more than the most preliminary discussions, you have to have a 3 statement model that flows. This is the Rosetta Stone of business.
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- Michele R. Partnerships Lead at Mighty Health
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Knowing your goals thoroughly, is key. As an upcoming business you must know the global impact of your product/service. Your goals should then be derivatives of the impact as you strive to connect with key stakeholders. Your funding source should similarly be aligned. Consider their experience in your industry as well as their reputation.
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First of all that person financial level, then how to improve our income minimum, then start minimum investment for mutual fund is best option for long term goal ,and life insurance for Start tax free income and our family future related cover also ,then health insurance that three thing must
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2 Understand your investors' needs and preferences
Once you have identified your potential investors, you need to understand their needs and preferences as well. For example, what are their investment criteria, goals, and expectations? How much involvement and influence do they want to have in your business? What are their preferred terms and conditions, such as valuation, interest rate, repayment schedule, or exit strategy? By understanding your investors' needs and preferences, you can tailor your pitch and proposal to align with their interests and create a win-win situation.
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- Alfredo Llosa Carrión DIRECTOR Liberty Seguros
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La base cuando se solicita financiación es saber que es lo que necesito y hasta donde puedo llegar. Saber sus propios límites. Sobrepasar lo que podemos asumir a la hora de solicitar puede ocasionar que de inmediato sea rechazado. Igual hay que estar dispuesto a dar las coberturas que imaginamos puedan solicitar, teniendo en cuenta nuestra realidad financiera en la empresa.
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3 Negotiate the key terms and conditions
After you have established a rapport and trust with your investors, you need to negotiate the key terms and conditions of the financing deal. These may include the amount of capital, the type and structure of financing, the valuation of your business, the ownership and voting rights, the interest rate and repayment terms, the milestones and performance indicators, the exit options and clauses, and the legal and regulatory aspects. You need to be prepared and flexible when negotiating these terms and conditions, as they will affect the future of your business and your relationship with your investors. You also need to be aware of the potential pitfalls and trade-offs involved in each term and condition, such as dilution, debt burden, or loss of control.
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- Jose Kiggundu CEO @ AGID | Business Consultant, Leadership Coach, Team Building Coach, Legal Consultant, Life Coach
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This stage is very crucial. What you negotiate determines how much influence you will retain in your own company! I know you need capital but be a tough negotiator as well. Do not simply roll out the red carpet for the investors. You are selling them shares and not the whole company so if you are not good at negotiator, engage the services of one! I cannot stress how important this stage is! You do not want to find yourself isolated and sidelined in your own company! Get a lawyer to help you interpret things! Do not sell yourself short just because you want to save money! Pay for a good lawyer and a negotiator if you have to.
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- Mario Mello I help you to realize your dreams by financial education.
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Aqui é importante ser realista sobre seu negócio.Tente estipular um cenário ruim e verificar se mesmo neste cenário o seu negócio gera mais caixa que o valor da divida. A TIR do seu negócio tem de ser positiva contra a dívida.
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4 Document and finalize the deal
Once you have agreed on the key terms and conditions of the financing deal, you need to document and finalize the deal. This may involve drafting and signing various contracts, agreements, and documents, such as term sheets, shareholder agreements, loan agreements, or convertible notes. You need to review these documents carefully and consult with your legal and financial advisors before signing them. You also need to comply with any regulatory or legal requirements, such as filing or registering the deal with the relevant authorities or agencies.
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5 Maintain a good relationship with your investors
After you have closed the financing deal, you need to maintain a good relationship with your investors. This may involve communicating regularly and transparently with them, updating them on your progress and performance, seeking their feedback and advice, involving them in strategic decisions, and reporting any issues or challenges. You also need to honor your commitments and obligations, such as meeting your milestones, paying your interest or dividends, or providing your financial statements. By maintaining a good relationship with your investors, you can build trust and loyalty, increase your chances of getting further funding, and leverage their network and expertise.
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- Presleyson Lima PhD | Doctor | Book Author | VP | CMO | Marketing Direct | Columnist | Cybersecurity | Information Technology | Growth Hacking | Information Security | LGPD | SIEM | SOC | NOC | Speaker | Researcher | Professor🔒
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Alinhamento de Expectativas: Garanta que as expectativas estejam alinhadas desde o início. Compreenda o que os investidores esperam do seu negócio e esclareça o que você espera deles.
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6 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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Don't forget. Whatever your terms are, your business needs to be cash flow positive.If the investor is lending money, do the payment terms allow you to be cash flow positive each month?Remember, profit does not equal cash flow. Using accrual accounting, it is very easy to show a profit and have negative cash flow.
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