Identifying the Right Pieces of Your Funding Puzzle
The funding landscape in Canada is shifting. New models are being created to increase transparency and accessibility, resulting in increased diversity and inclusion. As you grow your business, it is important to assess all the types of funding available to determine the right fit.
In other words, what are the pieces of your funding puzzle, and how do they link together? Explore the differences between debt and equity offerings, traditional and new means of financing.
Funding is not one size fits all, nor one way only, as many options fit together nicely.
Your decision will be based on your business model, stage of growth, and amount of funding you need. Some businesses are not eligible for debt financing as they are too early stage (without established traction) or do not have any assets to put against a loan as collateral.
Some businesses may be eligible for a small portion of debt financing, and need to raise additional funding through investors, to achieve the full amount of funding needed. Other companies are in fast growth mode and want to bring on strategic investors, perhaps combined with some smaller investors.
First, it is important to understand why you are raising money.
How do you plan to spend the funds over the next 12 months and how will this money move your business forward? Outline a budget and identify key milestones you want to achieve.
Second, think about the types of investors you want to engage. Some entrepreneurs love the idea of engaging a broad range of investors: some strategic investors who will bring specific expertise and networks combined with a community of smaller investors who truly believe in their product or service, or may even be customers. Other entrepreneurs are overwhelmed by the prospect of managing many investors. Others like the idea of having 5-6 larger investors who sit on their Board of Directors and hold them accountable.
Bringing investors on board can be a bit like dating.
You want to ensure you have values aligned with each investor, and that they share your vision of your business. Strategic investors can also stretch your thinking, and push you further. You need to be ready and willing to participate.
However, at the end of the day, it is your business and you want to remain in control.
This is also important to consider when you are determining how much equity to give up in exchange for funding and expertise. Map out a plan based on the information you currently have and your plans for the future. It is important to plan for subsequent rounds of funding in advance.
Placing a value on your business is also a challenge. The value you, as a founder or entrepreneur, put on your business may be different from an investor. An investor is not concerned with how much blood, sweat and tears you have put into the business. They are more interested in the outcomes and where the business is going.
Your business is only worth what someone is willing to pay for it
Establishing a reasonable valuation of your company is a subjective process, and it is important that you speak to many different advisors and mentors before agreeing to any terms. It has to feel right.
Yes, you will be giving up some equity in your business but ideally it is for the good of the company, and should feel good. You do not want to give up too much equity early on. Weigh the pros and cons of each offer, and know that it is ok to walk away.
Consider the ongoing responsibilities of having investors, versus just the benefits of having the money.
Investors will hold you accountable, and rightly so. They have trusted you with their money and expect you to use it wisely to grow your business, ultimately with a return. Regular and proactive communication with investors, whether you have one or many, is critical. Prepare to send monthly, or at least quarterly, updates on your progress as your business evolves.
One of the new shifts is the desire for more Canadians to invest in companies they believe in, and that are having a positive impact on the world. An investor wants to know where his/her money is going and how it will be used. As a result, a new group of investors is emerging. A group that has been traditionally under-represented in investor circles. This group consists of millennials, and more women.
This shift is also resulting in investors understanding that in order for positive change to happen, it may take a bit longer to realize a return and the return may be slightly smaller.
The result is the building of more sustainable businesses versus the elusive unicorns we hear about in the news (high, fast growth but also a higher chance of failure). More capital is being unlocked across Canada and being invested in meaningful, sustainable businesses, benefiting all.
There are many financing options available for businesses of all stages in Canada, and there are now new more efficient methods to access the right mix of financing for your business, including through online platforms.
Understand your reasons for fundraising, and then be sure to consider all of your options. You are the key to your business success, and you want to ensure you are bringing the right people and resources along with you.
Jill is the person you want to know if you’re running a business in Canada, and we aren’t even a little bit kidding. She’s the Chief Growth Officer of FrontFundr, a technology-based bridge between investors and entrepreneurs. Jill has built two companies, grew them nationally, and then sold them. She went on to lead two non-profit organizations that support entrepreneurs with financing, mentorship, and education. Jill is not only killing it at FrontFundr, but also serves on the Board of Governors for Simon Fraser University and the Board of the Women’s Enterprise Center, and is the Co-Founder of the WEB Alliance. She recently co-founded The RAISE Collective, to engage more women to invest in early stage companies. She’s won countless awards and distinctions, and she continues to help businesses become successful. To say that we have a crush on Jill is to put it mildly. We know exactly who we want to be if we grow up.