Dreaming is the easy part of starting a business. Putting the pen to paper, turning ideas into action, and getting others on board to believe in the vision with you is where the real work begins. Getting financing for the business is at the crux of turning ideas into reality, where the vision grows legs and gains momentum. This is true for a startup or for recapitalising a growth-stage business.
Every business is financed differently and it can often look a bit messy. Here are three sketches that represent a small cross section of how BAM practitioners have financed their business, both in the startup phase and long term.
Garment Manufacturing – Donor-based Startup, Crowdfunded Growth
Peter and Marit and their business partners began with a vision to create jobs for an exploited and underserved segment of the population in Nepal. In 2013 their business was born, an ethical garment manufacturing business in Kathmandu. The Nepali Government requires foreign-owned businesses to invest a minimum of $50,000 per partner in business startups. To invest their $50,000, Peter and Marit opted to involve their wider stakeholder community and raised donations for the startup capital. Eighteen months into operation, the business is self-sustainable and able to keep moving towards their growth goals. The donor startup capital approach has given them freedom to take some calculated risks, which has been key in determining the direction they have taken as a company. They see it as very beneficial to have had to raise that much capital as it has allowed them to scale more quickly and do things as a business that most cash-strapped startups are not able to do. They have also noted the freedom they feel being able to reinvest profits back into the company rather than having to pay back a significant loan in their startup phase. Last year, to finance the next stage of growth, and expand their social impact programs, the partners launched a successful crowdfunding project.
Total Import and Export – A Donated Seed, Bootstrapped Growth
To begin her first company in Macau, Gabriella was gifted US$394 by a Brazilian client to cover basic business registration costs. This small seed help enabled her to start a profitable import-export business. As the business grew, she was able to buy a house and felt God direct her to buy a particular property. The house became an asset and gave her collateral for low interest bank loans, plus a steady income through the five years she and her husband owned it. Remortgaging the house gave her capital injections that she needed as the business grew and in all she refinanced five times. Eventually Gabriella felt that it was time to start a business in mainland China in order to position for growth. She started out in faith, knowing that within two years of starting the business she would need to invest 500,000RMB (US$83,000). As the deadline loomed, Gabriella explored ways to raise the capital she needed, and at that point the Lord clearly showed her that they should sell the house. Gabriella felt a sense of loss and devastation since to her this was the one asset that was sure. Nevertheless, they obeyed and when the house went up for sale, the property prices had increased so much that she was able to repay all her outstanding debts to the bank, fully capitalize the business, with enough money leftover to buy three more houses! When she ‘lost’ the house, she found out that she gained far more than she had before. She is thankful that this approach to funding has increased her faith in God and in the wisdom of His ways.
Coffee House – Donor-based Startup, Loan and Equity Investment Funding for Growth
$20 was all it took for Joe to buy a barley roaster and turn it into a coffee roaster. He soon developed a coffee brand and started to sell his beans on a small scale in their Asian community. One day a donor contacted Joe and offered him US$100,000 to do whatever he needed with it, explaining that God had led him to do it. With that donated money, Joe and his partner purchased the first foreign-owned coffee shop in their city, renovated and expanded it, and also expanded the roasting capacity. In the following years, the partners explored many other business opportunities with their brand, including opening a restaurant. To do this they acquired further loans from individuals, as well as from investment companies. Although a second coffee-shop was successfully purchased, many of the business opportunities they expanded into through the loans did not come to fruition and at one point a large sum of the money was stolen. Joe and his partner were able to bring in an equity partner keep the business going and are still in debt repayment. Looking back they say that if they could do it over, they would not take on so many loans and would not be so quick to expand the business into new areas. They have learned the value of having high quality input from business mentors, maintaining focus on the original business, and the pitfalls of over-borrowing.