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Nicole Lunger/Missouri Business Alert

When seeking to expand a small business, entrepreneurs can acquire capital in a variety of ways. In 2019, banks issued $1.7 billion in loans to Missouri businesses making revenues of $1 million or less.

“There’s always a point where you’re saying, ‘OK, I need more money in order to grow,’” said Amos Angelovici, director of the Mizzou Venture Mentoring Service in Columbia.

Angelovici spoke with Missouri Business Alert during a live event on Friday. He recommended businesses consider not only the amount of money they need when applying for funding but also the reasons they need more capital.

“The first question any entrepreneur should ask themselves in a business is, ‘What am I going to do with that money?’’’ he said.

Beginning the funding process

When starting businesses, many entrepreneurs can provide self-funding from savings or friends and family. For entrepreneurs who fund their own businesses, Angelovici said it’s important to consider how much funding they will need to sustain the business and pay themselves.

“I would recommend actually putting on paper how much money you’re gonna spend, how much money are you expecting to generate,” he said. “Will that really cover your expenses and leave you enough in order to grow your business and pay yourself?”

Once entrepreneurs are raising funding, they should make sure to seek investments that help grow their business, and not just benefit themselves, Angelovici said.

“Going somewhere and asking for an investment in order to pay your salary is usually frowned upon,” he said. “But going out there and raising half a million dollars in order to beat another office, another branch generating more revenue, or expediting the growth rate, that is something that your investors are going to look at.”

Pitching a business

Once entrepreneurs are ready to bring in funding, they can seek out grants, which do not have to be paid back, bank loans or investment capital. While grants may be an ideal type of funding for some businesses, Angelovici said they are also often very competitive and hard to obtain.

Traditional loans from a bank have to be paid back but do not require a small business owner to give up any equity in their company.

Investors contribute cash in exchange for equity, but they can also offer mentorship, networking and other resources to entrepreneurs. Read the best startup books to know the right way of pitching to investors.

“I would say the best option for money would be a grant built for you as an entrepreneur because it doesn’t require you to return the money like a loan would do,” Angelovici said. “The money doesn’t ask you for equity of your business.”

Pitching a business for funding depends on the type of funding an entrepreneur is looking for, Angelovici said. He recommended entrepreneurs clearly define how much money they need and what they would use the money for.

“During that process, it’s not only about, ‘Look, this is the amount of money [I need],’” Angelovici said. “It’s more about, ‘I want to understand what is important to you.’”

Vetting investors

Entrepreneurs seeking to bring on investors should have a clear and reasonable plan for how to deploy those investors’ capital, Angelovici said.

“There are a lot of classic mistakes people do when they pitch,” he said. “One is, they’re showing unreasonable or growth or a plan or results that don’t seem reasonable or unachievable.”

Since investors are purchasing equity in a company, Angelovici recommended entrepreneurs look at the other additions an investor can bring besides just funding.

“You’re not only bringing an investor just to give you the money,” he said. “You would like that investor to help you either with their connections, with advice, with the ability to maybe bring in future investments or other investments and connected to them.”

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