Many companies need external funding to continue to grow. Sometimes those funding needs are met by banks, but they are far from always successful. Is that the case for your company? Then you must have already thought about selling some of your shares to an investor or raising subordinated capital. In this article you can read about the influence of an investor on your company and which rights of shareholders you should take into account.
5 things to deal with when looking for an investor
If you want to partner with an investor, there are a number of things you will most likely have to deal with.
Choice of type of funding
What type of funding you need depends in part on the stage your business is in. For example, perhaps a bank loan is the most appropriate, although you should keep in mind that a bank likes to cover the risk with collateral.
If that is not an option, for example because you cannot offer premises or machinery as collateral, then a subordinated loan is an option. This is not linked to any collateral. A third option is equity. That means you share a piece of ownership and control with the shareholders.
Critical questions in finding an investor
Finding an investor requires good preparation. After all, an investor wants to know what he is investing his money in. So, keep in mind critical questions about how your business is doing now, whether there is sufficient demand and what the projections are for the coming years. The goal is to give the investor confidence that his money will end up well. Therefore, be open and honest, including about any risks and threats.
Meet the Supervisory Board
If you partner with an investor, you will most likely have to deal with a Supervisory Board. Such a board has a number of different roles. It may feel like they are watching you, but you can actually benefit from them. If all goes well, they have knowledge and experience that you have to a lesser extent. With that, they can support you in growing your business.
Shareholder rights: a question of control
Shareholders have certain rights within your company. Anyone who partners with a shareholder gives up some of the control of the company. For many entrepreneurs, this is difficult, but necessary. That is why it is important that you make good agreements and record them in a shareholder agreement and articles of association. Consider, for example, agreements on the way of working together and in which cases consultation with the supervisory board is absolutely necessary.
Take your time
Finding investors takes time and requires specific knowledge and experience. Therefore, make sure you find people who can support you in this process. If necessary, you can collaborate with a specialized consulting firm. What you need in any case is a sound financial model.
How to grow future-proof with investors who have influence
Investors influence your business, but you want to work with them on your terms. That's possible, up to a point. The important thing is to find an investor with whom you can work well. After all, it is not just about money, but also about control. Make sure that you make good agreements about this and record this. But the basis is of course that you can trust each other and that good cooperation goes without saying.
Also make sure you agree on the information the investor will receive. This is often not just about financial information. Investors like to hear about important changes and issues you encounter so they can think along at an early stage.
Things are certainly changing
Whichever way you look at it: working with an investor has an impact on your business. But if you make good arrangements and make sure you are clear to yourself on what terms you want to work together, it is a great way to grow your business substantially.
Want to learn more about working with investors, the impact it has on your business and how NOM as an investor has influence? Then download our white paper.
Funding helps to get your business off to a fast start or to grow it further. But getting funding is not necessarily easy; there is a lot involved. For example, what kind of funding do you need? And what about equity?
Check out the funding options available from NOM