1 Internal Funded – In this type, ideally there is little pressure to achieve aggressive targets and so there is the opportunity of growing the Company using existing resources. Funding is often from own resources or friends or family who can be persuaded to contribute on an individual basis.
If funding is from family or friends, please ensure that
The money, which is given, can be lost. Ensure that the loss of the money would not affect their home or standard of living
The arrangement should be in writing
It specifies the amount, any conditions and whether it is for equity stake in the Company or as a Loan
When and how can money be removed / repaid
What returns can be expected (e.g. the valuation of loan or shares)
Best to get professional advice for both parties. Remember that personal & business circumstances will change, so keep the arrangements flexible and documented. One circumstance that can cause problem is Divorce, when assets need to be divided
Keep the Friends & family involved, both in the good and the difficult times. No-one likes surprises, because too often the surprise is bad new
Exit – document the exit route. This sets the level of expectations
2 External Funding approach – a more formal approach is required when larger sums are needed, which requires raising money from other people and funding sources who do not know you. The “Dragon’s Den” has promoted one, rather gladiatorial extreme approach to fund raising. But generally, it is an opportunity to sell your concept. Be clear on what you are looking for (e.g. money or money & expertise) and what you are offering.
Be prepared for searching questions, which will require you to justify your assumptions. Wherever possible have external independent support for your assumptions
Think very carefully about the advantages and disadvantages of Debt or Equity Funding. With Equity funding is easy to give shares but difficult to reclaim. Ensure to document in a Shareholder Agreement, how shares will be valued and traded in the event of a share sale.
Lastly it is easier to raise money for an existing business, than for a concept.
Postscript – Charter 4 does not provide funding, so this article is for interest, rather than trying to generate business