Securing Funding from International Investors as a small business owner in the US
For many small businesses in the US, access to working capital remains one of the biggest barriers to growth. Nowadays, new ventures are trying to compete in a crowded business ecosystem. In many cases, this ranks highly as one of the reasons why new businesses fail. A recent study by CB Insights found out that about 29 percent of startups failed after running out of cash. That shows just how critical the money issue is for small and medium businesses (SMBs) all over the world.
It is true to say that many factors contribute to a business’ inability to access funds. However, none of the factors ranks higher than the stringent lending and investment requirements placed by most financial institutions. Combined with the increasing number of startups and SMBs coming up every other day, this makes it extremely difficult for business to get investment from regular sources.
Businesses that still want to grow despite challenges will have to cast a wider net into the global arena. Venture capitalists, private equity firms, and other investors willing to put their money on businesses located outside their countries of residence are available. For instance, startups in the US attracted more than $200 million from foreign investors last year. This indicates just how thirsty foreign investors can be for businesses interesting investment opportunities. Most notably, international investors present a big opportunity for startups in need of capital. Below are tips on how to navigate the world of international funding.
Prioritize Compliance and Documentation
Different states in the US may have varying regulations and compliance guidelines. Before availing funds, foreign investors want to ensure that your business is compliant with existing regulations. That is because every investor would like to ensure that their investments do not go to naught when you are nabbed for noncompliance. For instance, it is prudent to ensure that your business complies with relevant employment regulations.
In addition, proper documentation helps your business to stay deal-ready. Having documentation of the prevailing competition, pricing and financial model, organizational structure, company leadership, and product description is an added advantage. This will go a long way to ensure your business is ready to roll once you have made your pitch.
Beware of Fees and Charges
One of the popular options for businesses in the US looking for overseas funding is using a finder. Typically, a finder is a company or individual who usually helps businesses locate potential partners or investors. Even as finders often make it easier to secure funding, they can require exorbitant rates as ‘finder’s fees’. For instance, finders in the US use the Lehman Formula to calculate how much to charge once funding is secured. Paying anything above 10 percent for any amount of funding you will obtain would be exorbitant. Therefore, it pays to be vigilant.
Dealing with foreign investors means that you will be dealing with multiple currencies. It is vital to ensure you know your way around the forex market. It is imperative to note that banks and other financial institutions often add as much as 3 percent as markup. That is usually above the market rate for most currency pairs and such costs may see you get less in the way of funding. There are recurrent charges that investors will have to pay before and after getting into an investment agreement with your business. It would be best to ensure that you are keen with such costs including taxes and annual fees.
Avoid Shying Away from Emerging Opportunities
Trends in ICT are changing the way business owners interact with potential investors. For example, Initial Coin Offerings (ICOs) have helped startups raise billions of dollars in funding in recent years. This has seen funding surpass investment totals from traditional investment vehicles like Venture capital and private equity funds.
Remarkably, new investment vehicles like ICOs allow investors to put their money on businesses outside their home countries. Sometimes, there is no need of intermediaries that often make it more expensive to invest. New investment vehicles also allow businesses to interact with potential investors who reside outside traditional banking systems. According to Paydayr, at least 13 million Americans have limited or no access to elements of the traditional banking system. Nevertheless, that does not mean that such individuals would not be attracted to an investment opportunity, given it is the right platform.
Explore Networking Opportunities
Noticeably, foreign investors have to challenge unfamiliar tax regimes, legislation, and markets that render global investments a risky venture. It helps to have a common platform that both your business and potential foreign investors will share to mitigate some of these risks. Just to mention, international communities and events present the best platform for risk mitigation and building trust.
There are local events that are famous for connecting global investors to local SMBs and startups in the US. It would be best to be on the lookout for such events.
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