Business Mentor: First question - do I need this money?

Q: How can I attract a partner to help finance my business?

A. Ralph Shale, of I Grow, replies:

Some steps are critical before you get too far into the capital-raising process.

Tip 1: The business case

The first step is to critically evaluate whether your business needs further capital.

Even more importantly, are there ways to finance the business without raising capital? If the time and commitment you need to invest in capital-raising process were focused on developing new sales channels would that be a better payoff?

Capital is like other resources available to a business (extra staff, a new machine, an advertising campaign). It has a cost and it has an effect on the value of the business.

You would not employ extra staff unless you thought they would generate sufficient revenue to cover their costs of employment, and the risks associated with taking on new staff; neither should you raise capital if you cannot cover the cost of that capital.

Tip 2: Debt or equity?

We often see businesses trying to sell the wrong product - trying to raise debt when they require equity or selling equity when debt is a better solution. The first is near impossible (and frustrating), the second can be expensive and time consuming.

Tip 3: Profile the ideal investor

Investors come in different shapes and sizes. So step one in this process is to develop a profile of the type of investor you are seeking and what you would like that investor to contribute as well as cash. Many investors can bring additional value, such as business networks, an ability to work in the business or customers.

Tip 4: Access the investor

The next stage is to identify by name a list of investors who fit the profile you have developed. Unless you are doing a retail offer, each approach should be individually tailored. For example:

Who makes the first contact - can you get a referral from a trusted source? Does the investor use advisers and therefore should you be approaching those advisers?

Are there aspects of the deal that will appeal to an investor, such as being complementary to other businesses in which they are involved? Is it a local business? Is it environmentally friendly?

Tip 5: What to present to them.

Some investors may prefer receiving just the executive summary, some may prefer, or respond better to, face-to-face meetings.

Tip 6: Summary

Raising capital is a process that takes perseverance and expertise. For a more considered view, register with Industry New Zealand's Investment Ready Scheme vcapital, which also give useful information on raising capital.

* Email us your small business question