When it comes to starting a business, there are myriad components to consider: your product or service, team, and new logo. You might even have an office space with a nameplate and title. But there’s one key part that you must have to get off the ground: money.
Your ability to fund your company can play a significant role in its overall growth. Funding is crucial in all the stages of a business: the startup phase, the expansion phase, and even in a plateau phase, where you’re facing significant challenges. To support your business, you should have a strong understanding of the type of funding available, what fits your company, and what to look for in a potential partner. By being thoughtful about funding now, you are preparing your team for better growth in the future.
Choosing the Right Funding
The first step is to consider the options: traditional venture capital, growth equity, and private equity. By looking at your current business model, the state of your company, and your goals for the future, you can determine which equity path is right for you.
Venture capital is a more traditional route, particularly for new entrepreneurs. You have an idea for a product or service, but you don’t know what to do with it. With venture capital, you’re able to secure the funding to get your business off the ground. In this case, your partner will purchase a significant portion of the company, and in return will offer support and guidance to nurture the company’s growth.
The venture capital stage isn’t always necessary. In fact, you may be able to start with capital from your personal network, which may be enough to support your startup in the earliest stages.
Growth equity, by contrast, is ideal for a company that has already excelled in the starting phases and needs another boost to continue expanding. This method can be called “rocket fuel,” a strong infusion of support to make the company’s growth explode. It tends to be founder-centric, offering more autonomy and staying true to the company’s original values and business model.
This route worked well for Tekmetric. Initial funding from friends and family supported the company from the startup stage into the small business stage. By 2021, Tekmetric had expanded tremendously, but more growth was possible. The company explored growth equity to help boost growth and provide funding for additional initiatives, such as marketing, product research, and hiring efforts.
Finally, private equity may be an option in the later stages of a business’ lifecycle. Private equity takes a large portion of ownership and makes significant changes in a business’ short- and long-term strategy. The private equity route tends to have significant check sizes—for good reason. It’s the best option to consider if the business is not profitable, and it can give the boost necessary to keep a company from going under.
Determining a Partner
Don’t choose a partner solely based on check size. This is a long-term business relationship—a marriage of sorts—and you should treat it with respect and thoughtfulness.
Once you’ve decided your preferred equity type, it’s time to choose a partner. Your partner will help set your business’ tone and future, and you should be highly intentional about who you decide to partner with. Consider the following:
- Is the partner aligned with my business goals?
- Do I trust this partner with my team and my business?
- What will my relationship with this partner look like?
- How much day-to-day involvement in my company does this partner expect?
- Does this partner provide a reasonable amount of funding to support my goals?
Regardless of whether you pursue venture capital, private equity, or growth equity, the partner you choose should be supportive and willing to work with you to help the company succeed. When choosing a partner, be transparent about your goals and expect the same from them in return.
Additionally, Don’t choose a partner solely based on check size. This is a long-term business relationship—a marriage of sorts—and you should treat it with respect and thoughtfulness. In addition to finances, you must also look at the chemistry between your team and theirs and find a dynamic that works for you.
At Tekmetric, we knew that whichever partner we chose would play a significant role in our future, with a strong impact on our overall tone and goals as well as growth. Because Tekmetric was already well-established in our industry, we wanted a partner that would work alongside us as a true business partner. This meant finding a company that was sensitive to our business and could pivot quickly according to our needs and our clients’ needs.
Stay True to Yourself and Your Business
No matter which path you take, choose the direction that best suits you and your business needs. Take your time, and don’t be afraid to speak up for what you need. What works for your company may not be the right option for another, and that is normal.
Financial support and equity can be confusing, and it’s easy to get lost in the numbers and forget why you started your business in the first place. However, the right partner will make all the difference. You are putting significant time and effort into your idea, your company, and your team. In return, you should expect a partner who supports your continued success long into the future.