Volker Hartzsch has a long history of multiplying investments, having invested in some 23 start-ups to date. This article will look at small and early-stage businesses and why securing investment at the right time is integral to their success.
An investment of collateral at the right moment can make all the difference for any business, helping it to weather unforeseen setbacks, ensuring its long-term survival and pitching it on a trajectory for future success.
Any money spent on a business is essentially an investment, whether these funds come from the founder’s own personal savings or an external finance source such as crowdfunding. Any money intended to grow the business is regarded as an investment.
A business may use investments to hire more staff, purchase new equipment or move into better premises. Investments may be used to develop the brand, patent and protect intellectual property, pay for advertising or provide staff training and development. All these examples require the business to spend money in the hope of achieving long-term success.
From an investor’s perspective there are several ways of investing in a small business, from building a business from scratch to purchasing shares in an existing company. Their investment will fall into one of two categories: debt or equity. While debt involves lending money to be repaid by the business at a future date, equity investors acquire a share of ownership rights and company profits.
Launching and growing any business involves huge challenges, and it can be difficult for founders to recognise the appropriate moment to inject more funds. An appropriate juncture may be when they find that they and their staff are working long hours but achieving relatively little progress in terms of growing the business. They may find themselves floundering in terms of reaching sales targets, with marketing efforts having little impact. Other signs that a business needs investment include slipping behind market rivals, failing to hit annual targets, high staff turnover and falling revenue.
Before approaching investors, business owners need to assess whether, when and why their business needs more capital. They also need to prepare a comprehensive business plan incorporating cashflow projections and identifying how they plan to use investment money. Business owners need to be able to spell out precisely how the investment money will help them to grow their business, how much they will need to achieve their goals and how they intend to repay their investors.
