FAILURE TO FUND? ALTERNATIVE FINANCING
Whether you’re looking to set up your own business, or expand an existing one, an injection of cash can make all the difference. We look at some alternative ways of raising funds for your business.
Until recently if you were looking for cash to expand your business the two main options available to you were private investment or a grant from Enterprise Ireland. But finding the right investor for your business can be tricky, and not every product or service fits the criteria for Enterprise Ireland. Still – there are other options available to you other than a humiliating turn on Dragon’s Den.
Crowdfunding
Crowdfunding, also known as crowdsourcing, entails using the internet to build up capital for your project. You pitch your project on a dedicated website, and people who believe your idea has potential can invest a variable sum. A big plus to the process is that it allows you to connect with people who you may not have encountered in the natural run of things, such as investors from abroad. This can be particularly useful if you are planning on targeting customers outside of Ireland. It can also be easier in some instances to get a large number of small investors, as opposed to one or more larger backers.
Ireland already has a number of indigenous crowdfunding companies, and global leader Kickstarter’s planned entry into the Irish market means it’s set to get more popular. There are downsides to it – if you don’t reach your set target, you don’t get any of the money pledged to your project, and successfully marketing yourself to meet your target can be time consuming for a fledgling business, particularly for entrepreneurs or businesses with a small number of employees.
The type of product or service that you have will have an impact on how successful a crowdfunding campaign can be. Novel and innovative ideas tend to get the best response.
Friends & Family
Borrowing money from friends and family is common when starting out, but the maxim about not mixing business and family didn’t come from nowhere.
With all business endeavours there is an element of risk, and it’s important that your close ones realise this. Make it clear from the start whether they are giving you a loan or if they are investing in your company. It’s an important distinction; the former means you will have a sum to repay, the latter means they can expect – or hope – for some return on their investment. Bear in mind that, like any investor, they may look for influence in how your business is run, which may or may not be helpful. Don’t rule out the idea of a legal agreement just because you’re dealing with someone you trust – it’s best to have these things hammered out at the beginning to avoid misunderstandings.
If none of the above funding options are applicable to you, then don’t rule out bootstrapping. Coming from the phrase to pull yourself up by your bootstraps, it is entrepreneurship at its grittiest, using personal income, savings and the lowest possible operating costs to get off the ground. Easier said than done, true, but many of the world’s biggest corporations – such as Apple, Coca-Cola, and Dell – began from these humble origins.
Eamonn Garvey
Partner, DCA Accountants and Business Advisors
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