Timing, as they say, is everything. As a child, you no doubt learned the importance of timing your requests for pocket money and treats. Asking the right parent, at the right time of day, meaning the difference between going without and getting exactly what you wanted. Knowing what to ask for was equally important. Similarly, finding the right investors and getting the right investment, is also a matter of timing.
Equally critical is knowing when it is best to go in search of funding. Don’t waste your time doing it just ‘because you can’ or because you’re eager to expand. The right reason will also determine when and who you turn to for financing (someone looking for a good return on investment like you are.)
Knowing when the time is right At the beginning: When you’re first starting up is as good a time as any to look for investment. Running a company requires a consistent cash flow to meet routine expenses which include paying employee salaries and overheads like rent. And, if your business model revolves around an inventory, then this is will also entail fairly significant expenses. Buying inventory, and selling wares/services, on accounts payable and accounts receivable bases in the absence of adequate revenues, means that you will need to rely on fresh capital.
There are options other than taking out loans to meet the financial requirements of having sufficient stock on hand. You could approach a funder or investor to finance these expenses till you start making enough money to minimize your burn rate. So one good time to look for investment is in the early stages, which is when you’re just getting your business off the ground. The other critical juncture at which you will likely need a fresh round of funding is when you decide to expand your business operations.
When you’re ready to take it to the next level: Every enterprise has to contend with challenging situations at some point or the other, and can find itself facing, as the poem famously puts it, “two roads diverged/ in a wood”, and pondering which one to take.
They have to take one or the other; not making a choice is not an option. One such challenge is the decision to scale up. This is typically when most small and medium businesses feel that it’s time, once again, for them to approach an investor for funding. Expanding a business costs money, and the moment you decide that this is what you want to do, is when you should start pursuing a fresh infusion of funds.
Before you do that though, examine your business plan. If you have a reliable blueprint in place, it should tell you if you’re at a tipping point in terms of growth, and if fresh funds will help put you in the big leagues. Knowing exactly when to pursue new investors is not just about instinct, but about necessity as well.
If you’re burning through your venture capital faster than you anticipated in an effort to get your business going, or if you’re keen to ramp up growth, that is when you should consider a fresh round of investments. Be prepared to go through multiple rounds of funding.