Investors have been key to the equation of raising capital. According to Statista for 2024, the total capital raised globally is projected to reach USD603.2 billion, while the total capital raised by businesses in Singapore is estimated to reach USD17.4billion. Yet, even though more SMEs are going to investors to raise capital, a few misconceptions still prevail.
4 Misconceptions on Investors That SME Owner Fear
If you are looking to fast-track your business into a million dollar generating cash cow, injecting liquidity for increase in production, R&D, and hiring talents are necessary to stay competitive in the capital market.
First-time fundraisers are afraid of investor because of:
- fear of risk and failure
- lack of financial resources
- limited knowledge and experience
- short-term thinking
- fear of losing control
If you're an SME owner or business owner and want raise capital from investor but worry about what they have in mind for you. This article will debunk any misconceptions on investor to shade some light on the beauty of fundraising.
Investors Only Want Sexy Business
Many believe that investors are only interested in trendy, high-growth industries like tech startups or innovative products. This stocks or private equity are often seen on the news with their huge growth potential over the next few years, thus making other less appealing businesses seem poorer.
However, what investors are truly looking for in businesses is a strong fundamentals, scalability, and a clear path to profitability, regardless of the industry. They value solid business plans and potential for sustainable growth over market fads.
Investors Wants Majority Share In The Business
Not all investors want to own a business.
A common fear is that investors will demand a majority share of the company, leading to a loss of control. As entrepreneurs and SME owner, we want to ensure our business stays within our control and what we do for the company cannot be dictated by others.
However, contrary to many founders fear, most investors are only seeking out for minority stakes. They aim to support and accelerate the business's growth while allowing founders to retain control and decision-making power. This stake in the company can go anywhere from as low as 1% of the company up to 49%.
A great example to refer is Grab. Grab Founder and CEO Anthony Tan owns just 2.2% shares of the company but is the voice of the company. The key is negotiating terms that align with both parties' goals. By letting investors know what the business trajectory is over the next few years, it give investors the confidence to invest and not manage the business if needed.
Investors Want Total Control of The Business
Another widespread misconception is that investors want to take over the business entirely.
While investors do seek some level of influence to protect their investment, they typically prefer to provide guidance and strategic advice rather than manage daily operations. Their involvement can bring valuable expertise and resources without overshadowing the founders' vision.
Great examples of investors are angel investors from Shark Tank. While they could clearly operate and manage the company, they would prefer giving out their advise and equity in the form of owning a portion of the company.
If it ever were to come a time where the investor is looking for total control of the business, founders and business owners should already have negotiated terms to protect their business from being control by another entity.
Investors are Always Looking to Cash Out
Business owners can take on other options to sell a business to someone else who intend to use the business to expand their own or continue the cash flow. Another option is to go IPO.
IPO is a great way for investors and business owner to create an additional source of income. Through listed shares on the public market, investors may sell your shares at a profit on the stock market, or the firm will pay you dividends on the shares you own.
How PIF Capital Fast-Track Business Owners Growth
At PIF Capital, we help SME and business owner fast-track their business growth through corporatization and bring them to the public market and get listed. Through coming for our IPO3 event happening every Tuesday from 9 am to 12 pm, we share how we link your business to the right investors and guide your through your business growth in the capital market.
Through IPO, SMEs and business owners may be able to build an additional source of income and attract public investors to invest. This helps to raise business awareness and build more confidence in the business.
Once again, if you are looking to raise equity and IPO your business, do join our weekly IPO3 session, conducted every Tuesday from 9 am to 12 pm.