RAISING FINANCE FOR YOUR START UP BUSINESS (10)

 

By Ayo Emakhiomhe.

 

PRIVATE PLACEMENTS.

 

Private placement or private investment capital is money invested in your company usually from private investors in the form of stocks and sometimes bonds.

 

This is usually a mode of investment sought by firms that either cannot or are not yet willing to approach the stock market. Some companies use this method as a preliminary to entering the market by introduction. An introduction is an application for shares already in issue where no marketing arrangements are required. This is because the existing shares for which listing is sought are already of such amount and so widely held that there would be an open market for the trading in these shares. Since only existing shares are listed by introduction, it follows that no new shares will be issued and no additional funds will be raised.

 

The main benefits of this type of investment are

 

• High degree of flexibility in amount of financing with combinations of debt/equity

 

• Investors are more patient than venture capitalist, often seeking 10 to 20% return on investments over a longer term of 5 – 10 years

 

• Much lower costs than approaching venture capitalists or selling the stocks to the public as an IPO (initial public offering)

 

• Quicker form of raising money than usual venture capital markets.

 

WHAT IS REQUIRED FOR PRIVATE PLACEMENTS?

 

• A very sound business development consultancy company  like Coinbox Limited to prepare the various documents and strategy plans.
• A very sound business plan- Coinbox Ltd can help you with this.
• A private placement memorandum (PPM) disclosing the full facts of the investment and business. A sample copy can be found at www.vlaonline.com/ppm.Coinbox limited can also assist with drawing this up for you. 
• A law firm or lawyer experienced in private placements

 

With the limited infusion of capital into the stock market, the private investor market is an attractive alternative for investors and small businesses. Private placement offers a viable source of business financing without the stress of taking a company public and conceding control.

 

TARGET MARKET

 

• Your customers whom you are already doing business with and are familiar with

 

• Close friends and family

 

• Institutional investors like banks, finance houses, insurance companies, etc.

 

• Suppliers to your company

 

• Creditors to your company

 

• Distributors

 

• Company contractors

 

• Staff, etc.

 

What prospective investors usually look for before investing in a private company is return on investment as well as security of their capital.

 

Also, the investor will want to know how easy it is to pull out his investment whenever he has to. A solution to this is to make the offer redeemable which means that the company can buy back its shares whenever they are put up for sale.

 

 

 

To employ any of the methods outlined above, you must have already done your research/feasibility study and prepared a business plan. If you have not, please prepare that first before deciding which method or combination of methods will best suit your business plan and needs.

 

If you do not have a business plan, you are like an army general that went to war without any combat strategy, he and all his men were killed in battle.

 

Also, always Endeavour to start small; Even if you have all the capital to hit the high market with your product or service. Always start with just a small test first. Do a Test run of your venture before slowly releasing funds to grow it to size. By doing this you will see any small problems that otherwise would have been hidden by large outlays and your mistakes and losses will be small. Also, backing out if necessary will be at minimal loss/damage.

 

 

emakhiomheayo@yahoo.com

 

 

Don’t forget to read a book today.

 

Thanks to all those that sent emails and texts. Please keep them coming.

 

Please note that previous posts on this and other topics are available by just a click on the archive to your right on this blog page.

 

 

 

Please don’t forget to visit our blog on leadership- www.zerofactorleadership.blogspot.com

 

 

The COINBOX team.
 
 
REFERENCES:
 
http://www.investopedia.com/

 

http://sbinformation.about.com/cs/creditloans/a/prplacemt.htm

 

Raising capital for small businesses; non-bank ways of financing SME’s by Adekola Owolabi. Published by David Richard Associates (2006) Nigeria. davidrichardass@hotmail.com.

 

http://www.askventure.com/

 

RAISING CAPITAL FOR YOUR START UP VENTURE (9)

By Ayo Emakhiomhe.

INSURANCE


Insurance involves hedging against a contingent loss or damage. It involves the equitable transfer of risk of a loss from one entity to another. (www.wikipedia.org).

Insurance is usually carried out by an insurance company (known as the insurer) for an insured entity who is the one paying for the insurance or taking up the policy as a policy holder. What the policy holder pays is known as premiums. Premiums are paid on a periodic basis or per transaction as the case may be.

There is a policy for all type of risks; from life insurance to marine, theft, burglary, fire, vehicle, business, fraud, burials, to endowments of all kinds.

This means that insurance is an integral need to every business and every person.

But, it is also a very good source of raising finance for your business or projects.

INSURANCE LOANS: Some insurance companies provide individual or business loans at an interest to their policy holders. This loan in form of cash is usually for a certain percentage of the policy holder’s premiums to the insurer.

Once the policy holder has been able to establish a business relationship with the insurer, and having met terms and conditions set by the insurer, the policy holder can request for certain cash loans from the insurer to fund a defined need which the policy holder can use to fund a business.

BONDS/GUARANTEES: A policy holder can also request for insurance bonds to fund projects like construction contracts, supplies, etc.

An insurance bond is more like a guarantee by an insurer to a third party to make for any loss in capital and interest on behalf of an insured if based on the terms on the bond, the issuer fails to do so.

COLLATERAL FOR LOANS: An individual can also take personal loans from financial institutions like banks backed by a life policy as collateral.

The life policy can be an individual/group life policy. This is usually carried out at an interest to the holder of the policy based on terms and conditions as stipulated by the insurer.

ENDOWMENTS/FUNDS: One can also set up an endowment and drawdown on it (based on defined terms and conditions) or use it as collateral to get financing from institutions like banks.

So many ways of funding outside the ones listed above exist from insurance companies. All it takes is approaching an insurance agent/broker today.

The insurance option of funding is not popular in Nigeria but it actually exists.

To employ any of the methods outlined above, you must have already done your research/feasibility study and prepared a business plan. If you have not, please prepare that first before deciding which method or combination of methods will best suit your business plan and needs.

If you do not have a business plan, you are like an army general that went to war without any combat strategy, he and all his men were killed in battle.

Also, always Endeavour to start small; Even if you have all the capital to hit the high market with your product or service. Always start with just a small test first. Do a Test run of your venture before slowly releasing funds to grow it to size. By doing this you will see any small problems that otherwise would have been hidden by large outlays and your mistakes and losses will be small. Also, backing out if necessary will be at minimal loss/damage.

Don’t forget to read a book today.

We wish to apologise for the long absence and silence on this blog. It was due to some technical issues that have now been resolved. We had so missed you guys and would ensure such a long silence does not reoccur in future.

Thanks to all those that sent emails and texts. Please keep them coming.

Please don’t forget to visit our blog on leadership- www.zerofactorleadership.blogspot.com

emakhiomheayo@yahoo.com
coinboxlimited@gmail.com