From the top · 11 November 2015

James Caan’s seven-day startup guide: Day five – Capitalising your business and the rise of alternative finance

Knowing the right source of funding is pivotal
Knowing the right source of funding is pivotal

How to capitalise your business will always be at the forefront of every choice you make during your startup stage because, eventually, you need to figure out how you’re going to finance your business and choosing the right route can be tricky as there are so many options out there.

The rise of alternative finance continues to thrive and this abundance of opportunities can sometimes make it difficult to really understand what works best for you: the new, savvier entrepreneur looking to take financial investment into your own hands. Crowdfunding platforms have exploded with the likes of Seedrs, and social lending platform Kickstarter, acting as first points of call for startup investment.

Globally-distributed investor platforms like these allow finance to be allocated to anyone, anywhere. They are not restricted to their local angel network, and can access a flurry of financing opportunities across the globe.

It’s important to shop around when looking for investment opportunities rather than taking the first thing you find. For example, taking advantage of the community aspect crowdfunding presents could be really beneficial for your business and can put you in touch with people who are going through a similar experience. On the other hand, perhaps angel investment would be better for you. Although this often involves an equity stake, capitalising on the business experience and mentorship an angel investor can offer could be the difference between success and failure. Similarly, applying for funding through the government-funded Start Up Loans scheme can provide a great fusion of finance meets consultancy.

It helps to understand what an investor using any of these platforms looks for when investing in an entrepreneur. I understand that backing entrepreneurs is risky because there is no absolute – we’re swimming in ambiguity. However, as an experienced investor, I know how to take calculated risky decisions and to execute this, I look at several different facets before making my final decision. I need to be sure I’ll make a return from any investment I make and this is what I found most difficult during my time on Dragons’ Den – I couldn’t evaluate the business because I had to make a decision on the back of a pitch. All I could rely on was passion and determination to succeed.

As well as illustrating passion, I also look for originality, an entrepreneur who has some relevant experience and a product or service which has demonstrated good traction and customer demand. In my last column I talked about building the right team of people and this is something I always ask a potential investment. To start, many entrepreneurs are on their own which makes them an even higher risk for investors like me because we have to buy into you completely.

Think about looking for a co-founder or bringing in people who can add something different. Business is all about advancing on a multitude of different skillsets – the more skillsets involved, the better, more reliable and more valuable your business will be.

Before you make your decision, make sure you do your research. Choose the one that’s right for you.

Up next: Step six in your startup journey is about getting customers and my next column (published on 18 November) will focus on marketing and branding your business.

And remember, if you have any specific questions for me then please don’t hesitate to get in contact with the Business Advice editorial team.

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ABOUT THE EXPERT

Renowned investor and business builder James Caan is currently the founder and CEO of Hamilton Bradshaw, a firm specialising in buyouts, venture capital, turnarounds and real estate investments. Prior to that, he was one of the longest-running investors on BBC television show Dragons’ Den, founded and exited recruitment business Alexander Mann and was the chairman of the government’s Start Up Loans initiative. His efforts were recognised when he was awarded a CBE for services to entrepreneurship and charitable services through the James Caan Foundation.

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