Second round business funding is often not the first thing you think about when you talk about business funding. Most people think business funding, they think start ups. New businesses, with no track record, looking for seed or start up capital. However, while that may be the most popular notion, when it comes to business funding, it’s certainly not the first time that companies need to find funding! Once the business is growing, second round business funding if often needed, and the source for this, increasingly, is venture capital in South Africa.
In this article, we look at second round business funding: funding to help you grow, expand, and improve your existing business and why working with corporate finance consultants might be the best and most effective path for your business to become investment ready and consider the right source of investment or finance.
When Is Second Round Business Funding Necessary?
The first thing you need to find out about second round business funding is when you might need it.
Traditionally, companies apply for second round business funding when they have already established their business, are successful, and are looking to take their company to the next level. This is the correct approach for most businesses according to our business plan consulting team who specialise in business plans for business growth funding.
Usually, that means expanding into new markets, investing in tools or equipment that allows them to expand capacity, or some other expansion designed to increase revenues and profits.
Second round business funding is NOT something you apply for because you’ve spend your first capital investment, without achieving your start up goals! If you try to apply for funding just because you’ve run out of money, you’re likely to find a lot of doors closing in your face, very quickly!
Who Can You Approach for Second Round Business Funding?
This is a trickier question and perhaps best addressed through working with a corporate finance consulting firm which would be able to firstly ensure you understand how to get your business investment ready and secondly guide you towards the source of investment best suited to your business and growth plans . In some cases, particularly if you have received business finance from a bank or traditional lender, you might be able to approach your loan account manager for second round funding, however, it may be tough to convince them, and you would need collateral to secure the loan.
In many cases, businesses looking for second round funding turn to venture capitalists or angel investors, who are generally more willing to take an equity stake in an up and coming company, and are less risk averse.
Sometimes, you may even find companies in your industry, who are willing to take a stake in your company, particularly if you offer complimentary products or services.
How Do You Apply for Second Round Funding?
Applying for second round business funding is a lot like applying for the first loan or investment you got. You’ll still need a business plan, you’ll still need to pitch, and there’s still a lot of red tape involved.
This time around, however, instead of selling your idea, you’ll be selling results. You might include ideas – in the form of expansion plans and new markets or products, but investors considering giving you second round business funding will want to know how your company has been doing so far.
If you can prove that you’ve grown significantly, that your products and services are in demand, and that your team works well together, then you’re far more likely to get second round business funding.
The Upside of Second Round Business Funding
The good news for business owners looking for second round business funding is that this time around, you’ll be on a much better footing, when it comes to negotiations.
Brand new ideas, untested companies, and new entrepreneurs often have to give in more to secure the first round funding they need to start their companies. Entrepreneurs looking for second round business funding, who already have a successful business that they want to grow, have more leverage at the negotiation table – and probably more people willing to invest.
It’s not unheard of for companies who self fund to successfully secure second round business funding too, so if you’ve been working hard bootstrapping your company, and it’s paid off, there’s every chance that the next growth phase of your business could come from outside funding sources!
So if you are looking for second round funding, start polishing up that business plan! You’re going to need to prove just how great that idea turned out to be!
The Caban Group has compiled a significant infrastructure of service providers who support entrepreneurs with access to business finance, support with restructuring, access to grant funding and support in improving cashflow challenges. Our Corporate finance team in the UK supports the South African head office to ensure you have the best possible chance of securing the support your business requires. Contact the team at Caban through the contact form on the website or by emailing Info @ Caban.co.za
