How do I know when to turn funding down?

How do I know when to turn funding down?

Jenny Robertson, a corporate partner at law firm Stevens & Bolton, explains how businesses can work out how to get the best deals on finance and funding.

For a start-up or a growing business, getting the right funding at the right time can be a real lifeline. But taking the wrong funding can be a millstone around your neck.  So, how do you decide what sort of funding to take, and whether you are getting the right deal?

Do your homework and take advice from others who have been there before

Look at all the different funding types and options available and make sure you fully understand what you are getting into.  If you are taking debt funding, how much interest will you have to pay and can you afford the regular instalments?  If you are taking equity (share) funding, what sort of return do the investors expect and when, and how much control will they have over your business?

Negotiate

Unless you are borrowing money on bank standard terms (and sometimes even then), investment terms are generally very much negotiable.

It may feel like the money men have all the power, but if they see value in your business they should be open to making sure that you get a good, workable deal. And the fact that you are sufficiently well-informed and confident to negotiate with them will be a good sign that you are likely to take the same approach in running the rest of your business

Be positive but don’t over-promise

Whether you are seeking debt, venture capital or crowdfunding, you are starting a long-term relationship with your investors.  If you are setting expectations that you can’t meet, you are likely to get caught out, and this can be really damaging at times when you might need the investor’s help or support.  This is particularly relevant with crowdfunding, where your investors may also be your core customer base and where any problems will become very public.

Build relationships and trust your gut

You may spend quite a lot of time with the investor or their nominated board representative over the next few years.  Make sure that they have a similar vision for your business to yours, that you will be happy talking to them on a regular basis, and that you trust them to make good decisions. 

Take your time

In order to find the right deal that will help your business to fly, allow yourself plenty of time to explore your options and don’t leave it until you are desperate for the money. 

Above all, don’t be afraid to say ‘no’.  Taking investment requires a long-term view and a bad deal really can be worse than no deal.