Finding Money for Growth

You may have the greatest business idea in the world, but you need money to transform that idea into a product or service that you can take to market. You will need to hire people, find prospects and market to them, sell, provide customer service, pay rent, collect money, pay bills – and all that costs more money.

Growing companies always need more money, but more money does not automatically guarantee growth. So first develop a plan, then decide whether you can fund growth yourself or whether the opportunity is so big that you will need to access “other people’s money”.

Here are ten options to fund growth – and more if you combine them.

1. Personal Assets

Most founders forego salary and benefits and use personal assets to fund their company’s growth – because they believe their own company will provide a higher ROI than property, the stock market, or working for someone else. 

2.  Reinvesting Profits

Another option is to invest the company’s profits back into the company and grow off your balance sheet. If the CEO is making a conscious choice to invest funds in people, marketing, sales, systems, equipment, and facilities, that makes sense. But if the company is running at a loss and can’t pay its bills, don’t pretend that you are “investing in growth”. 

Look hard at whether sales targets are being met, receivables are being collected, and spending controls are in place. 

3. Loans

You might approach friends or family members or talk with your banker about a business loan.  Depending on your credit history, the size of the loan, and how well they know you, they may ask for collateral or some way to secure the loan so that if your company goes under, the loan can be repaid via your personal assets (e.g., your home, property, or a certificate of deposit).

If you have good character, collateral, a reasonable business plan, and look like you will be able to pay back the loan with interest, you stand a good chance of receiving loan approval, as well as a schedule for repaying principal and interest.

4. Government grants

Both state and federal governments offer different kinds of grants. The Australian Government lists more than 630 grant funding and support programs. Grants do not require you to give up equity or pay back the money, but you will need to answer a lot of questions and fill out forms. In essence you need to convince the grant reviewers that funding your company is a good investment of taxpayers’ money.

So, if you do get grant funding, work hard to deliver the outcomes you specified in the grant application.

5. Vendor or landlord financing

Rather than using your own money for capital expenses, consider bank loans or vendor financing (leasing) for the capital equipment you need. And rather than tying up your own capital to buy the land or construct a building, you could consider working with a developer to build to your specifications, then sign a long-term lease for the building – and redeploy that capital in other ways to support your company’s growth.

6. Equity investor

Angel Capital

If you have a disruptive idea, your company has high growth potential or a fast-moving market opportunity, you may want to consider selling a portion of your business to other investors. "Angel investors" are people who invest their own money in exchange for a percentage of equity or ownership in your company. Angels are generally the first equity investors and make a “seed” investment.

Venture Capital

Venture capitalists invest funds secured from pension, insurance, retirement funds, or wealthy individuals or family trusts.  They generally invest after the seed round of equity financing. Choose your investors carefully; there are differences among VC firms. However, if you receive an investment, the VC will expect a seat on your board and a say in major decisions. VC’s want a multiple of 3-10X their investment, so your company needs to be high growth and on the path to “going public”.  If a portfolio company does not grow quickly enough, VCs are likely to replace the CEO and/or sell the company. 

Private Equity

Traditional private equity funds focus primarily on leveraged buyouts and distressed asset sales. If the product is sound or the market is growing, the private equity firm might buy a company that is underperforming. They usually replace the management team, and expect the new team to grow the company, pay off the debt, and begin generating profit.

7. List on the stock market through an Initial Public Offering (IPO)

A very small number of growth companies, usually those with a disruptive technology, choose to “go public” and list on the stock exchange, usually in their country of origin. It’s a way for many people to “share the risk” of funding the continuing growth of the company.

8. Crowdfunding

Crowdfunding is an online platform that enables private companies to source funds for projects by offering securities to many people, via the platform. Remember the Flow Hive crowdfunding video that raised $2M in the first 24 hrs (and $16.9M in 6 weeks)? Those funds enabled the innovator to manufacture the product and meet the market demand.

9. Merging or selling

Another way to fund growth is to merge with another company.  Or you might sell a portion of your company to a larger company, or perhaps spin off some divisions of your company into separate companies and allow the larger organisation to co-invest in those companies. 

10.  Hybrid model

Another alternative is to sell part of the company to an equity investor, taking some of the payment as equity and some as a loan, with principal and interest being paid back from the profits which the additional funding should enable.

Clearly there is no single way and certainly “no right way” to fund growth. But getting the right kind of money, from the right kind of people, can enable you to capitalise on market opportunities, accelerate growth, and increase the odds of your success – an outcome everybody wants!

Dr Jana Matthews, ANZ Chair in Business Growth, founding Director of the Australian Centre for Business Growth