I’ve attended and moderated many events, and one of the most frequent asked question is definitely non other than “how can we get extra funding?”……
Typical answers given are nothing new, apply to government agencies for grant/subsidy, borrow from banks, crowd-funding platform etc, which is not wrong, but I guess if this question is to be posted to me, my answer is still back to basic, the Triple Fs, Family, Friends & Fools (ok I didn’t meant they are fools, i just wanna make up the numbers)
I’ve came across a SME that came to seek help to apply business loan, they asked for loan amount of a million ringgit, with a paid up capital of 100 ringgit, obviously banks won’t approve the loan unless they increases the paid up to 1/3 or 1/4 the loan amount (given the company’s reserve is negligible). Same rules apply, if you go to any official platform to raise fund, there are terms and condition pre-exist, either they talk about asset backing, track record or future performance.
Unlike family and friends, they invest in you as they trusted you, believe that you won’t cheat their hard earned money, more importantly you had a long term relationship with them, nothing really need to be proven (unless all this while you are not a trust worthy person).
As external party, I will view this as the confident level of the entrepreneurs, example:
- Borrow money from the bank will costs you high financing expenses, gonna hit your profitability, unless your profit margin is really good;
- Invite other investors will dilute your equity control, unless the new investors can add value to your business or he/she pays a very high PE;
- Grants from government is a free money, should be quite safe right? I will say yes and no. Very simple logic, if the grant don’t comes in, will you stop your business/idea? if the answer is “yes”, that means you are not really an entrepreneurs, coz the real entrepreneurs will find ways no matter what.
Since you are so confident about your business/idea, you should be able to first convince people that trusted you to invest in/loan to you before you consider others, coz if you can’t even convince your family and friends (whom know you for long) how do you think you are able to convince bankers/government/potential investors to give you the money?
I know some consultants may disagree with this but my point is very clear, when the money invested in/loan to you from someone you loved/trusted, you won’t take business failure as an option, you will spend it wisely coz these money is in a form of trust in relationship. but will you think like that when the money come from grants or banks?
Having said that, to be a responsible entrepreneurs, you should have your facts and data ready at all time, show to your friends and family as if you are getting loan/investment from 3rd party, they trusted you thus it’s more important for you to be fair to them, if you need to show 3rd parties these data, you must show them as well.
Some tips for you to consider:
- starts with friends and family who have common target customers; they will do their best to refer these customers to you since they are now have interest in your business;
- starts with a small amount, prove the result before you ask more from others, build the confident level not just for them, but to yourself as well;
- Keep them posted on the progress. They may not understand your business, but since the fund is generated via relationship, you don’t wanna destroy it by keeping quite, they give you the money, its their rights to know how you spent.
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