For most business owners and entrepreneurs, this thing called equity financing is some what nebulous to say the least with all slices and sections of the market all thrown in together.
And while different forms of equity capital may be interested in very different types of business financing deals, there is some logic that can and should be applied to the pursuit of equity financing.
First of all, is your project is a pure development stage, pre commercial, or commercial with the need for expansion?
Each one of these stages of business development will tend to attract a different audience and command much different levels of interest.
For the pure capitalists, any type of deal may be something to consider if the investor believes they have the potential to get a strong enough return, but like most things in life, people in general, including equity investors, tend to have specific business stages they will consider for specific product or service categories servicing certain markets.
Second, the farther away you are from being able to sell something and make a profit, the harder its going to be to attract financing, and the financing you do attract is likely going to want the cake and eat it too along with the kitchen sink and all types of control.
The best way to attract equity is to 1) work from a position of strength and 2) be most focused on sources of money that already have a direct interest in what you’re trying to develop or bring to the market.
While I did say that equity investors can have very particular appetites, you can generalize somewhat and put them all into two groups. Group one is a pure venture capitalist that while only focusing on a narrow band of stuff, is still prepared to get involved in a project in the earlier stages. This group of investors are also prepared to look at a large number of opportunities before ever considering putting out any money.
Group Two represents people or companies with money or access to money who would be very interested in incorporating what you have developed or are developing into their business model to help fill a void, provide a missing piece, or turbo charge something they’re working on. The key to attracting this type of money is to have at least a working model or prototype of what you’re trying to do available to prove you’ve moved from theory to reality.
And if you have something Group Two wants, you’ve immediately increased your chances of securing equity financing as there may not be any other opportunities they are even considering funding that are related to what you have.
My advise on equity financing is, if at all possible, to focus on Group Two. Put together whatever money you can to get whatever you’re trying to do working at the smallest possible scale. At that point, you have something to sell and it shouldn’t be all that hard to find parties that would be interested, providing you’re trying to tap into an established market demand.
If you’re trying to blaze a new trail, that’s a whole other matter which will likely end up being more of a needle in the haystack approach of sourcing equity (sorry).