Raising Finances with Expansion in Mind
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Many prospective entrepreneurs will agree that raising startup capital for a new business is not easy. However, according to existing business owners, the process of raising capital to expand an established business may be considered even harder. To avoid the difficulties associated with future funding requests, financial analysts are now recommending that entrepreneurs keep in mind the probable need for additional capital in the future, including potential business expansion plans, before requesting capital.

Avoid underestimating funding requests
Additional capital may be difficult to obtain in the later stages of a company’s development, especially if the company did not successfully perform as initially anticipated. This risk of failure is the main reason why many investors often do not want to make follow-on investments within the same company. As a result, this greatly limits an entrepreneur's funding choices. Future company funding, including the prospect of expansion, should always be kept in mind when determining the amount of capital needed since requesting an overestimated amount is considered better than an underestimated one. Therefore, an entrepreneur needs to evaluate all possible expenses before they approach a business investor for capital.

Protect current investment
Many entrepreneurs may choose to invest in other business opportunities once their current investment gains stability because it provides another way to generate profit. While becoming involved in another business endeavor is a good way to financially protect a current investment, an entrepreneur must create a balance between both opportunities. It is this harmony that will enable the success of multiple business endeavors. There are many ways that an entrepreneur can protect the interest of the first business investor. Of course, this has a lot to do with the negotiating and management skills of the entrepreneur.

Common VC strategy
A very conventional approach of most venture capitalists is that they often do not concentrate a lot of funding into one project. Instead, they like to spread their invested capital among several projects at the same time. However, one of the best scenarios for an entrepreneur is when the business investor agrees to invest in the business once again. While many investors tend to avoid reinvesting (follow-on) because of the risk that a company may fail, it is a more common practice in successful technology companies which are prepared to go public.

Convertible debt
Usually, most first time entrepreneurs structure their first round of investment in the form of convertible debt. This protects the business investor by providing him with a price discount compared to the next round of funding. However, some entrepreneurs are intimidated by resorting to convertible debt because it can often be an expensive process, and the thought of accumulating debt can be daunting. When considering convertible debt, the entrepreneur must keep in mind the company event that will trigger the conversion (i.e. the company revenue threshold), the amount of discount that will be given when the conversion takes place, and a backup plan if the conversion event does not occur. While the idea of convertible debt is often underrated, it provides an effective way to secure investment funds without the need to establish a valuation on a company. This can be extremely helpful in protecting early investors from stock dilution (the reduction of an investor’s stock price from the initial purchase price) that may occur in the next round of funding.

Most successful entrepreneurs develop a financing strategy with the future in mind. Therefore, they are aware that the amount of capital they initially request will also cover the possibility of future expansion. By resorting to convertible debt, they protect the interest of the first business investor and can avoid dilution of the company’s value.

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