Ravi Chandran
“Why?” and “How much?” – these two questions are the most important starting and ending point of funds search
By: Phoenix Lee/
It is not enough to only have a concept or idea for funds search. You must have a clear plan. People cannot help you achieve your goals if they are vague and lack detail. Do Not even bother starting to try to raise funds until you have clearly thought out and answered these questions.
The importance of a good business plan is absolutely essential as a starting point in funds search.
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Its role is not just to convince others to lend or invest money in your venture. It is much more important than that.
What a good business plan does for you:
- Brings clarity and detail to your ideas
- Gives the idea depth
- Helps focus all involved in exactly what the goals are
- Reduces potential for future conflict
- Gives a much more realistic base to the level of finance that is needed
- Is a marketing point for potential lenders and investors
- Helps reduce stress and uncertainty
- Gives comfort and assurance
A good business plan is the single biggest challenge in your funds search. If you cannot produce this yourself than consider paying someone to help you.
Producing a business plan is not really that difficult. If you start with a pro-forma plan from the internet and fill in the blanks you will come up with something pretty reasonable. The next step is to show people whose opinions you respect and incorporate constructive criticism.
The financial plan is extremely important and if your knowledge of accounting is limited this may be an area that you should seek help on.
Remember you must be able to justify and support any and every aspect of your plan.
Also remember to THINK BIG – no one is interested in small.
Once the plan is completed
Now that you have a plan and know exactly what you want the next step is to find a source of funds. If you try to start your venture with the bare minimum of funds you are setting yourself up for stress and failure. Things will go wrong.
If you raise more funds than you need you are likely to overspend and therefore waste money. You may have to give up too much of future earnings or the business to get funds that just sit in a bank account. Wasted money can be hard to recover. Also staff, if they see things done in a wasteful and glamorous style, are likely to be much more demanding.
In your funds search, raise only what you need. But be realistic about this and make sure you have enough for contingencies.
Borrowing money or finding investors for a business
When considering how you should raise the necessary money for your business it is extremely important to start with a plan. Many new businesses fail because they are under-capitalised. It is easier to raise / borrow money at the start of your new business venture than when things begin to go wrong.
Your options for funds are:
- Put your own savings into the business
- Borrow funds
- Find investors for your business
Put your own savings into the business
The two sources of own funds are really savings or selling of unused or under used assets. It is very important to contribute some of your own funds as it helps to convince lenders/investors that you believe in the project. It also tends to make a project less risky if the portion of borrowed or outside funds is less.
Borrow funds
This is the most difficult way to raise any significant level of money.
Personal loan – In Hong Kong even if you have a reasonably low level of income a personal loan of up to $200,000 is fairly easy to obtain from the bank. Just do not mention you want to borrow it for a business venture. It is, on the other hand, quite easy to get a loan to renovate your apartment or go on a holiday etc.
Credit cards – Not, in my opinion, the best way to raise funds as the interest rates are very high. But a very easy source of loan capital. YouTube was largely financed by the guys that set it up on credit cards.
Family – Very good if it is an option but you should consider selling them part of the business venture rather than borrowing money from them.
SME Loan guarantee scheme – The Singapore Government underwrites small loans for start-ups and SMEs. If these are to cover the costs of fixed assets they are relatively easy to get and are essentially low-interest, guaranteed, hire-purchase agreements. These loans are also available for working capital although these are more difficult to obtain.
Business loan from bank – Forget it. (Unless you are a large well established business or are willing to put up personal collateral). Banks do not lend money to small businesses. Banks do not lend money for new ventures. If you want a loan from bank do not even mention business start up or new venture.
Find investors for your business
This is a much better option than borrowing. Many people want the opportunity to get in on the ground floor of something new.
With a good plan and a good vision it is quite easy to generate interest from potential investors. Talk about your plan and vision to everyone and let it be known you are looking for potential investors. You will be amazed at how many people will want to talk to you about the possibility. My advice is to ask family first if you get on well with them. Two main reasons – they may be upset if you do not give them the opportunity and it makes drawing up shareholder agreements etc. so much easier.
Investing is now so much more open to so many more people that there are now a multitude of schemes designed to bring investors and business owners together. These are usually called “angel investor” schemes. For small businesses in Hong Kong you will generally find two key groups by investment value. The first group are those looking to invest up to one million dollars, the second are looking in the range of up to five million dollars.
THE HARDEST PART in FUNDS SEARCH – By far the most difficult aspect of working with an investor is deciding what share they will get and the level of say they will have in your business. A detailed and comprehensive shareholder agreement MUST be written up.
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