Home Articles So you have a great idea that could make a lot of...

So you have a great idea that could make a lot of money, but first you NEED money

2

It’s one thing to have a great idea that could potentially make you a lot of money or serve a social purpose, but it’s another to get that idea off the ground. To transform your idea into reality, you will need determination and, just as importantly, you will need funding.

Although raising capital can be difficult, there are plenty of stories around of hard working entrepreneurs who have a great idea and manage to not only make that idea a reality, they also make themselves rich.

A good example of this is the online travel company Wotif.com, which was founded by Brisbane-based entrepreneur Graeme Wood. Wood was given ‘a few hundred grand’ by a handful of investors who believed in his idea. The day the company listed, his holding was worth in excess of $100 million, as was the shareholding of those early investors. Today, the company continues to grow in size and profits.

So what it really boils down to is that funding can be the make or break of your innovation and, if you can’t get enough, it’s likely your idea won’t get off the ground.

There are a number of ways you can raise capital. Here some of the more common ways:

Ask the bank

Bank loans are often the first and the most practical method of raising capital, and also most likely the cheapest form of funding. However, since the financial crisis many financial institutions have restricted their lending and this could make obtaining a bank loan more of a challenge.

The normal criteria for corporate lending includes: tangible goodwill based on future retained cashflow, or tangible equipment or machinery, or a proven profitable business. If you can’t show any of these, it will be virtually impossible to secure a bank loan.

When borrowing from a bank, avoid giving personal guarantees and, if securing a bank overdraft, scrutinise the terms. If you exceed the limit, they will impose hefty interest rate penalties and weekly penalty charges.

Angel investors / Venture capital

Angel investors are wealthy investors who typically provide funding to early-stage, high-potential growth companies in the interest of generating a return.

Angel investors are often experienced business people or serial entrepreneurs, so one of the upsides of attracting an angle investor is the possibility of being able to tap into their experience. The downside is that being an individual they usually do not like to put too much money into a single venture.

They are often very private in their dealings, have stringent investment criteria and high expectations of the businesses they invest in. They expect a certain level of information available to establish whether it is an opportunity worth investing in and they don’t make their decisions lightly.

Often these investors are constantly approached to invest in different opportunities. Its important to have the right information in place so that when the opportunity presents itself you are ready to present your plans.

You may also want to consider a venture capital group as opposed to an individual. The principal is much the same, but instead of dealing with a sole investor, you are dealing with a dedicated firm whose main objective is to invest in businesses that have the potential to be lucrative.

Venture capital investments are generally made as cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and ICT.

Listing and taking it to the public

Listing your company and making it a publically-owned entity where its shares can be traded on a stock market can be difficult and complex. It can take six months or more to go through the process of listing your company.

In order for this to succeed you will need a clear business and financial plan and be able to show the potential shareholders what return they can potentially achieve.

There are many benefits to listing your company aside from gaining capital. For instance, it places an objective market value on your business, it can encourage employee commitment as share schemes can make attractive incentives, increase your business profile and also enhance relationships with customers and suppliers who are reassured by the regulatory processes involved for the business to be listed on a stock exchange.

Apply for a Government grant

The biggest consideration when applying for a government grant is time. You’ll need to find and identify which grant is right for you, prepare the necessary documentation, which can be lengthy, and possibly meet government officials. This entire process can take a considerable amount of time.

You may also want to consider obtaining some professional advice. Applying for grants can be a complex process, so it’s best to seek advice from your accountant, lawyer, business advisor or a specialist grants consultant to help you prepare your application.

Places to start researching different grants include government bodies and websites, industry associations and grants consultants.

If you’re lucky enough to land yourself a grant, you will be obligated to report your progress and achievements to the government department that gave you the grant. This will involve ensuring that your record keeping and reporting are effectively in place.

Michael Derin is founder and MD of Azure Group, where he helps many companies to achieve financial and business objectives by redefining the relationship between accountant and client.

Get unlimited access to our FREE business tools…

Need to raise capital? Want to become a more persuasive presenter? Want to master social media? Is it time to overhaul your website? Unlock the library to get free access to free cheat sheets and business tools. Click here for free business tools.