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Once your business has reached a certain stage, you want to accelerate growth. The growth phase of your company is crucial as it takes your startup to the next level. But any kind of growth requires growth capital. Finding funds for growth is just one part of the battle; deploying them in the correct places is equally important.

Where to find funds
Before you go ahead and ask people for money, you need to have your growth plan in place. Are you looking to exit at some point? Remember your business is not there to support your lifestyle, you are an employee first and then a shareholder, so you need a clear vision. There are then only two broad sources of financing growth—debt or equity.

Debt
The best and most traditional example of debt financing is bank loan. Both nationalized and private banks offer loans (term loans) charging a rate of interest in return. If you are sure that you don’t want to sell your equity, retain 100 percent ownership of your company and profits made, then debt financing is what you need. However, banks only give out loans against some collateral which a lot of startups don’t have at such any early stage. Also, debt equity needs to be re-paid or re-financed at some stage.

Equity
Though quite practical for startups, equity financing comes with a price, literally, as you will have to relinquish some ownership of your company. Investors are not money lenders, they invest to get returns and exit. How much of your company they own depends on how much they invest.

Moreover, equity financiers will impact the control of the company as they enter high-risk, high returns businesses. When you raise funds through this route, you need to make sure that there is a high level of proprietorship and investors benefit from the value proposition of your company in totality. You can go to:

* VCs: This is the most popular route for equity financing. VCs want stock in your company, form part of your board and have a significant say in all business decisions. They typically come in at a stage to launch a new business, create a new market or expand business.

* Private equity funds: Typically PE funds invest in mid-sized companies with a strong financial base and come in at a much later stage of the business.

Where to deploy funds
As an entrepreneur, you need to identify the revenue drivers of your business and deploy your growth capital there.

Broadly, your options to deploy capital are:
* Invest in R&D/upgrade technology: If you have a tech-startup or a business where your core competency lies in R&D, upgrading and improving it would be crucial to growing it.

* JV and alliances: Putting money with someone else who will also be responsible for the growth and betterment of the business can be beneficial.

* Ad and marketing: Publicity costs money. But it helps you build a brand name, increases visibility and can generate good results.

* Manpower: Invest in improving the quality and quantity of employees hired, and/or training them with the right skills.

* Franchisee network: Investing in a network of franchisees increases your customer base and revenues exponentially. Moreover, it is shared effort as every franchisee is also as interested in growing the business as you are.

* Infrastructure: Investing in machinery and other infrastructural resources is relevant if you’re in the manufacturing sector.

©Entrepreneur May 2010

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deploy, funds, growth, startup