Securing equity funding for a business involves a strategic process. There are many steps you will need to undertake if you are to secure equity funding. Luckily, SimpliFi is on hand with the ultimate guide that breaks down each step on your journey.
Be sure to read our equity funding roadmap to learn all about equity investment and how you can get equity funding for your business.
How do you get equity funding?
Before we dive into the equity funding roadmap, we need to understand what equity funding is and how to get it. Equity funding is simple to comprehend; it is issuing shares in your company in exchange for cash investments. Investors will supply equity funding in the hope that they will gain a return on their investment through the company's profit.
Giving up shares of your company does mean surrendering control of aspects of the company, knowing that others will have a say in the decisions made. So long as you retain 51% of the shares, you retain the majority control of your business.
You can get equity funding through a wide range of avenues. Some of the common sources of equity funding are friends and family, angel investors for startup business, crowdfunding platforms, private equity funds, government funding, and more.
If you want to learn more about the types of equity funding, specifically how to secure early stage funding or how to pitch to angel investors, then we have all the resources you could need.
The steps to secure equity funding
Now that we understand what equity funding is and the common sources of equity funding, let's go through all the steps you will need to take to secure equity funding for your business.
Business Plan and Preparation
The first step should always be to develop a business plan that clearly outlines your business model and shows clear evidence of market analysis, as well as your revenue projections and the growth strategy of your business. If you are unsure how to write a business plan, then we have created a helpful guide to support you through the entire process.
To best prepare to showcase your business to potential investors, you should create financial projections that include your revenue expenses, cash flow, and valuation expectations. Having a clear business plan and a strong understanding of your business's cash flow for the present and the future will help you secure equity funding.
Understand Your Funding Needs
The next step in your equity funding roadmap is to determine just how much capital you are going to require for whatever purpose you would use the funding for. This can be expanding your business, undertaking research, or funding a marketing campaign to put your business in front of a wider audience.
When you have determined how much capital you are going to need, you will then need to understand the equity percentage you are willing to offer in exchange for the funding. This is important not only to show you have knowledge of equity funding but also to make sure you are not giving up too much control of your business.
Market Validation
Investors want something to invest in, and there is no better way to show an investor that your business is the perfect target for equity funding than to have a customer or user base that is actively showing interest in your company. Having demand and showcasing that you have traction in the market is the best source of proof of growth.
If you do not have an active audience or need funding for a project, then a crowdsourcing site is a great way to generate an audience without prior investment. If you have a strong prototype and initial sales, or a minimum viable product (MVP), then you can expect to increase the attractiveness of your business to investors.
Identify Potential Investors
If you know the industry you are in, then you can target specific people who invest in your industry or people who align with your stage and have the funding needs you are seeking. Doing your market research will make it much easier to target specific investors or bring in people who may have an interest in your product.
When you are looking for potential investors, you should look for venture capital firms, angel investors, or private equity groups that invest in the industry that can be targeted for equity funding if you have a niche that makes you stand out. Crowdfunding sites are also a great way to find potential investors, as they will be searching in the specific area your project falls under.
Create a Compelling Pitch
This step is simple and requires you to develop a concise pitch deck to show to interested investors. It should highlight your business idea, market potential, traction, and financial projections. It is best to tailor your pitch to ensure that it will resonate with each investor that you pitch to, as they may be looking for different things.
Stay Flexible
Ensure that you are open to feedback and are ready to adjust your pitch or business strategy based on the input from investors. Whatever feedback you receive should always be taken as positive; it allows you to grow and apply advice from people with an understanding of your industry.
Be Persistent
It can take time to secure equity funding, so be prepared to face multiple rejections and setbacks along the way. If it were easy, everyone would be starting businesses, but by being persistent when others give up, you can continue to build and learn from the industry and your experiences in it, which will lead to the right investor coming aboard and taking your dream to new heights.
Download our “Equity Funding Roadmap Infographic"
Next steps for Equity Funding
Now that you’re well versed in how to get equity funding, you can decide if this business finance option is for you. For more information, contact us today and a member of our team will be happy to support you.
