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Could a joint venture be the best funding option for your startup?

Written by Paul Mizen on Friday, 20 July 2018. Posted in Funding, Finance

There are many options available to you when it comes to funding your startup. So you better choose well

Could a joint venture be the best funding option for your startup?

Finding funding for a startup is like shopping carrots – there are more options available than ever before. Time was you went to buy carrots and that was it. Nowadays you have to pick between organic ones, washed ones, bagged ones, loose ones, tops on,  tops off, sliced and diced. It’s a new level of choice.

Similarly, you went to the bank when you needed business funding. But now there are far more options.

Let’s leave aside the possibility of your sitting on a mountain of cash courtesy of the lottery, an inheritance or a lifetime of prudent saving. If you’ve got the capital you’re sorted.

Without that dosh your first idea is still probably the bank. They certainly, even in these post-crash times have a range of products and business loans available. Interest rates have certainly been higher than they are right now so the bank is an attractive option. That said,  they will put you through some rigorous testing and there will be a lot of small print. The other thing to ask yourself about the bank is if  they really understand your business. It’s important because generalisations are dangerous and your business may have specific cashflow, seasonal or market sector issues that a bank manager might not be familiar with. And you’re  going to be in this for the long run – it’s about more than just that initial cash injection.

A second option is to try peer-to-peer lending. At one level you could say that means simply borrowing from family, friends or business acquaintances. There may not be as much small print with these arrangements but they do come with some emotional ties and demands that are not necessarily what you want in your first months of business.

The digital world has opened up the possibilities of concepts like crowd funding. It’s an attractive option. But the clue to the possible negative is in the name. The word crowd. You’re opening up a potentially complex network of funding, with responsibilities to a lot of people.

You can avoid many of the possible pitfalls and almost certainly engage with a backer who understands your business sector, by taking the franchise route. It ticks a lot of boxes. The drawback, as I see it, is this. In a franchise you’re going to be working under someone else’s brand. Isn’t having your own brand one of the main reasons you want to be a startup?

The joint venture business model is something else that – although now tried, tested and proven – is still not automatically on a would-be entrepreneur’s check list, which is surprising because it represents perhaps the best start point for your own business.

The right joint venture partner will know about your market and business. They’ll understand. Providing the funds for the startup at the outset, they will also provide support and mentoring that’s so vital in the early days.

It’s the balance between the autonomy you’re seeking and the backing you need that makes the joint venture concept work. Free of financial pressure, you can focus on what you do best. Supported, in an informed partnership, you concentrate on building your business without the worries of administration, cash flow and taxation issues - to name but a few.

Choosing the right route into your business will  have a massive impact on the future of your business. Ask yourself, do you want to be waving somebody else’s flag and working under the pressure of meeting repayments, with the penalties that come with falling short? Or do you want to be motivated, focused and looking to the future with all its promise. It’s a choice that I guess could be described as the stick or the carrot. Your choice. Choose well.

About the Author

Paul Mizen

Paul Mizen

Paul Mizen is managing director of the Recruit Venture Group, the largest venture partner of their kind in the UK.

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