International investors can be a great opportunity for businesses just starting up who are in need of capital. Let’s take a closer look at ways you might be able to get the international funding you are looking for.
Many startup businesses face challenges in obtaining working capital for growth. They are continually competing in a world that is overcrowded with businesses referred to as a business ecosystem. The business ecosystem comprises of organizations such as suppliers, distributors, competitors, etc, that are involved in the delivery of products or services. Unfortunately, this is the biggest reason why so many new ventures will fail.
A study performed by CB Insights discovered that approximately 29% of new startup businesses fail because they run out of money. Now you can see how really critical having enough money is for both small and medium-sized businesses, even though there are other factors that add to a business not having access to funds. Not having a good ranking makes it very difficult to receive funds because of the strict demands set by most financial institutions. Adding to that, there are hundreds, if not thousands, of startups, both small and medium, popping up on a regular basis, making it very difficult for businesses to get investors from normal sources.
Businesses that are determined to succeed, despite the challenges, are now broadening their searches in the global arena for better opportunities instead of staying local.
There are several other avenues for receiving needed funds such as private equity firms, venture capitalists, and other investors that are more than willing to place their money on businesses that are located outside their own countries. As an example, Finland attracted approximately $241 million from foreign investors last year alone. This shows just how hungry foreign investors can be for businesses that are looking for funds. If you decide this is a good option for you, here are a few things you should keep in mind when searching for global funding.
Place Documentation & Compliance In Order Of Importance
Regulations and compliance issues vary greatly from one region to another. Investors from foreign countries must ensure your business is in compliance with the regulations in your country so they will know their investments will not be fined for breaking rules. You must show that your business complies in all areas including relevant employment, benefits regulations, FDI and banking regulations. Your business structure must comply with all set rules and regulations within your region or country.
Your documentation must be up-to-date and complete in order to remain in the market of seeking investments. Your documents must have detailed descriptions of your competition, pricing, and financial model, organizational structure, your business leadership, description of your products and other relevant documents that will ensure that your business is ready to take off running once you have delivered your pitch.
Understand Fees & Charges When Using A Finder Service
There are many businesses who choose to use a Finder Service when looking for overseas funding. Finder services can be an individual or a company that helps a business locate potential partners or investors. Even though these services make it easier to secure funding, they also come with a high price tag for their finder’s fees.
In the United States, it’s common practice for finders to use the Lehman Formula to calculate how much they should charge a business once funding is secured. Therefore, be aware that paying anything over 10% for any amount of funding is considered exorbitant. You must stay on top of finders’ fees and choose wisely.
You will be dealing with dozens of currencies from potential foreign investors so it’s really important you know your way around the forex market. Banks and other financial institutions will usually add as much as 3% markup above the market rate or most currency pairs, costs that may lead to your business getting less in the way of funding.
Also, stay up on recurrent charges such as taxes and annual fees that your investors will have to cover before agreeing to an investment with your company.
Don’t Overlook New Opportunities
There’s no doubt that technology has changed the face of investments. ICOs or Initial Coin Offerings have helped startups raise billions of dollars in funding over the past few years and are literally surpassing investments from traditional investment avenues like VCs and private equity funds.
New investment avenues like Initial Coin Offerings will allow investors to put money on businesses outside their own countries and sometimes without intermediaries that usually make it more expensive to invest. They also allow businesses to interact with potential investors that operate outside your typical banking systems. According to data accumulated and published by Payday, approximately 13 million Americans have limited to or have no access to aspects of your traditional banking system. That said, it doesn’t mean that these same people wouldn’t be interested in investment opportunities as long as it’s the right platform.
It’s highly advisable you do your homework on absolutely every opportunity that presents itself as a result of rising technologies. Look into blockchain-powered peer-to-peer lending platforms, AI-powered investment avenues, and other related opportunities to make sure your business does not miss out on opportunities for going global.
Look Into Networking Opportunities
Foreign investors are continually dealing with unfamiliar tax rules, legislation, and various markets that make global investing a risky business. Therefore, it’s always a good idea to have an intermediary or a common platform that both a potential foreign investor and your business will share to lessen some of the risks. International communities and events might offer a perfect platform for risk alleviation while building trust.
Always be on the lookout for events that connect global investors to small and medium businesses along with startup businesses. Some events might include Startup Grind and TNW Conferences. Look into international opportunities such as 500 Startups and make the effort to join international trade associations across the world.