Equity, Debt & Donations
Finding money to support businesses; and entrepreneurs' ambitions, is never a very simple process. But it is made easier with good work to start with. The basic advice is simple. To raise money, you need to explain the proposition in the simplest terms; and find somebody that manages capital who really understands it. Funding comes in many forms. At the highest level, there are four or five main structures you can use:
Equity, where somebody takes a stake in your organisation and often gets involved in running it;
Debt, where a bank lends your organisation money with the expectation that it will be repaid in the future;
Mezzanine, which is normally a mix of equity and debt - enjoying the fixed-return structure of debt, and also taking part in some of the risks and rewards of equity;
Sponsorship, where individuals or organisations associate themselves with what you are doing in order (normally) to get a social benefit, whether that is marketing or something more personal or intangible; and
Donations, where individuals or charities give your organisation funding or other support for tax breaks and/or a sense of social purpose.
Each of the different types is appropriate in different circumstances. Each is cheaper in its own way: equity doesn't involve the risk of debt; the expectations of returns (how much you are expected to pay back) on debt are lower, involving yourself with sponsors implies a certain pattern of behaviour that sponsors will approve of; and your projects being, to some extent, designed around other people's ideas; and donations typically imply operating as a not-for-profit. The funding you need is best tailored to what you want to do, the risk of your operation; the amount of control you want to maintain; and your ambitions.
To add to the problems of funding, it is easiest to get funding from an organisation that really understands what you are trying to do. If you are an entrepreneur in a new market, that is often difficult. If you think you have reliable cashflows but banks have never lent to your sector, then you will struggle with the banks; and so on. There are times when you have to change the shape of your organisation to get funding, but this is often a mistake - funding generally follows good ideas... and good ideas shouldn't be lost to bad funding. More often than not, it is a careful telling of the story that makes everything work.