New and Growing Companies (NGCs) today have many more options for sourcing financing than in the past. Traditional sources of lending for start-ups are still widely available, but there are now numerous alternative sources of finance that could be the solution for funding growth.
Avishai Marziano works with several technology start-ups as an adviser to their boards of directors. The rapid evolvement of the alternative finance sector means that many start-ups are able to find opportunities even when traditional financing methods are unavailable or cost-prohibitive.
When looking at private investment, there are four key areas that NCGs can explore: friends and family, angel investors, venture capitalists and private equity. The first two are more associated with start-up capital, while the latter two are more likely to be looking to fund growing businesses. Angel investors, venture capitalists and private equity firms will often bring a wealth of business acumen and industry knowledge to the table as well as funding, which can be useful for businesses that are just starting out or are seeking to expand into new markets. However, this often means the business owner giving up a partial stake in the business in exchange for capital and expertise. Some business owners will be happy to do this, whereas others may prefer to explore other avenues for investment that allow them to retain sole control.
Crowdfunding has become a popular method of raising money for all sorts of businesses, organisations and events. With crowdfunding, the capital raised comes in small increments from many different people. The risk to the funders is therefore minimal, while with enough investors at the table the business can raise large amounts. Crowdfunding differs from traditional investments in that the money raised does not typically have to be repaid to the investors. Many start-ups that use crowdfunding offer other forms of incentive to investors, such as free samples, exclusive discounts or other services.
Companies that are reliant on large amounts of expensive equipment to run their business may consider asset financing as a way to minimise expenses in the early days. Rather than purchasing assets outright, businesses can enter into long-term leasing agreements that allow them to pay in installments over the lifetime of the lease, rather than a lump sum up-front. The business ultimately ends up owning the assets but pays out in smaller increments over time.
Invoice factoring can help companies that want to realise funds tied up in unpaid invoices, but don’t have the time or resources to chase up late-paying customers. Businesses can raise money quickly by selling unpaid invoices at a discount to a factoring company. As and when the customers pay, the money goes to the factoring company rather than the original business. The advantage to the business is that they can realise that money immediately and use it for other aspects of the business. The disadvantage is that they lose a percentage of their income over the longer term.
Early Stage and Development Loans
Smaller businesses may find that they can access early stage loans or development loans without having to put up any assets as security. Interest rates are likely to be higher than with traditional loans to compensate for the additional risk taken on by the lender through offering an unsecured loan. Many large institutional investors are now offering these types of loans to eligible businesses, seeing the potential risk to reward ratio as attractive enough to offer an unsecured loan. These types of loan can also often be accessed far more quickly than a bank loan or other form of traditional loan.
About Avishai Marziano
Avishai Marziano is currently in the process of forming a new company offering regtech services to the telecommunications and gaming industries. This comes off the back of more than 20 years of experience working within the telecommunications industry, which includes more than 15 years working in the complex marketplaces of Africa. Marziano has a deep interest in the emerging regulatory technology sector, which provides systems for regulatory processes to ensure compliance throughout the financial industry. Avishai Marziano has previously held the role of Group CEO for a major company in the telecommunications industry.