In the lifecycle of every company, there are stages that require financing. Company growth also requires money. But where do you get it?
There are two basic options: Bank-loan financing and equity financing, which can be obtained from external sources, private investors or specialised investment funds. Loan approval depends on several factors including, for example, the company’s stage of development, business model and the purpose for which the funding will be used, as well as the company’s ability to repay the loan or provide collateral. The bank’s position on refinancing the purchase of a production line will certainly be different from providing funding for an e-commerce marketing platform. Another option is external sources of capital – investment funds or, as the case may be, venture-capital funds. An investor is an institution that provides capital primarily in exchange for a majority stake in the company and without personal involvement in its operation. The investor expects appreciation of its investment within three to five years in the form of the sale of the company or dividends.
There are few business angels
A company may also find itself in a situation where bank loans are unobtainable and it is too small, too slowly growing or too complex for investment funds. In that case, the company can turn to business angels, i.e. investors with available capital who are willing to grow that money by investing in companies at an early stage of development. However, business angels are rare in our country.
Mentors are professionals
An alternative is investment platforms, which open the way for entrepreneurs to obtain resources from private investors. It is important to distinguish crowdfunding from crowdinvesting. Crowdfunding platforms are collections, for example for product development. Crowdinvesting is appropriate for financing development, expansion into new markets, increasing production capacity, building up the company’s team and establishing ties with loyal customers. Occupying the space between crowdfunding and investment funds, a professional equity crowdinvesting or investment platform is a mediator in the investment world. The investment of each individual investor is significantly higher, which reduces the total number of investors from hundreds or thousands to dozens. The company will receive financing, freedom and support. For the majority of investors, the return requirement is connected with knowledge of the sector in which the company operates or belief in its social benefit. An example is Crowdberry. The relationship between the company and the investor is not anonymous. Investors can get to know the company’s founders on a personal level and discuss the company’s vision and plans. The platform plays the role of an expert advisor for both parties.
This article was created in cooperation with the economic daily Hospodárske noviny as part of its Investment in Business series: https://hnonline.sk/prakticke-hn/2108773-bratia-velitsovci-mieria-opat-do-cela-pelotonu