Tuesday, August 13, 2019

Seven Ways To Take Your Startup To The Next Level - Forbes

Seven Ways To Take Your Startup To The Next Level - Forbes


Seven Ways To Take Your Startup To The Next Level - Forbes

Posted: 13 Aug 2019 06:15 AM PDT

So, you've made it through the difficult process of starting a new company, obtaining initial financing and surviving your first few months or years. Congratulations. But this is no time to relax. The next big obstacle most startups face happens when they transition from startup status to becoming a viable long-term company. You can't just sit still, or your competitors will catch up and pass you — it's time to jump to the next level. But how? As a younger company, you may need some type of partner to fund your expansion and you have multiple options. Here are seven different paths to help transform your business from merely surviving to thriving. 

1. Mergers 

A true merger is fairly rare in the corporate world, as it involves two companies consolidating into a new legal entity. However, for the right businesses, this can be a way for both of them to jump to the next level together. For example, if two companies are competing in the same business and undercutting each other's profitability, neither one of them may be able to climb to the next level. By merging resources, personnel and production — while also eliminating each other as the competition — the newly combined entity can move forward and grow.

2. Acquisitions

Mergers and acquisitions are often misunderstood as being one and the same. The truth is that although these two types of corporate action share similarities, they have major differences.

In an acquisition, one company fully absorbs another company and retains its own name and corporate structure. As a startup company, an acquisition can be an excellent way to accelerate your growth. When you acquire a company, you can instantly diversify your product line, expand your customer base and keep (or obtain) dominance of your market. 

One caveat that I will stress for newer companies is that you have to be careful with the financing. I've seen how too much debt can cripple growing companies, so you'll need a sharp finance officer to navigate these waters from day one.  

3. Investors

One of the most common ways for a startup to get to the next level is to find more investors. In fact, most growing companies go through many series of capital raises with additional investors, labeling them Series A, Series B, Series C and so on. Each capital raise can help get your startup to the next level, as you should be pricing your company with a higher valuation at each round. For example, if you value your company at $500,000 in your initial capital raise, your Round B financing might value the company at $1,000,000 or more. Thus, in each round, you are raising additional financing while giving away smaller and smaller chunks of your corporate stock.

4. IPO

An initial public offering is a dream for many startup founders. And for the right company, an IPO can be a huge step toward future growth, as it results in a flood of capital hitting the company's balance sheet that can be deployed toward growth and expansion. 

If you pursue an IPO, your company will transition from being privately owned to being publicly owned, meaning large investors will own a significant percentage of your company and can influence how you run it. In exchange for capital to grow your business and generate additional profits, you'll have to give up some of the control of the company. You'll also have to comply with all the regulations of a public company, including filing quarterly and annual reports.

5. Strategic Partnerships

A strategic partnership is a less invasive way to grow your company than a full-blown merger or acquisition. For a strategic partnership to work, it's imperative to find a partner that can help you gain market share and reduce risk. For example, if your company only has a local or regional product line, it might benefit from an international partner or distributor. 

The important thing to understand when you're shopping for a strategic partner is that your relationship is most likely to be successful if your arrangement is a win for both parties. It's also important to undergo a thorough due diligence review to ensure that your partner is solvent and has a solid reputation.

6. Special Purpose Acquisition Company 

A special purpose acquisition company is a separately created entity that a company uses to raise money to invest in other enterprises. These companies are also known as "blank check" companies since they raise money from investors who don't have control over where the proceeds will be spent. This can be a good option for startups that either don't want to or can't actually qualify to go public on their own. Examples of recent SPACs are GigCapital2 and Proficient Alpha Acquisition, which raised funds with the intention of buying a financial business in China.

7. Nasdaq Private Markets

Nasdaq private markets provide liquidity for companies in the pre-IPO stage. Essentially, Nasdaq private markets provide a way to match growing companies with strategic investors. The average age of companies in the program has steadily fallen over the years, from 10 years to 6 or 7 years old, as both companies and investors alike are looking for ways to mutually benefit. As capital is the lifeblood of growing companies, Nasdaq is a great tool for companies looking to climb to the next level.

The Bottom Line

There's no shortage of ways for a successful startup to evolve into a rapidly growing company. The key is to strike the right balance between what you have to give up and what you get in return. If you take on too much debt or give up too much control of your company, for example, it can be hard to sustain your growth trajectory. However, if you carefully review all of the various partnership and financing options that are available to you, you can pick just the right type of rocket fuel your company needs to launch to the next level. 

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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