If your business has been running successfully for some time, perhaps you are looking to take it to the next level and expand it, budget is required to achieve this; However, cash flow is not always enough, so you may ask yourself which is better for you: raising capital or debt?
The reality is that it all depends on what you are looking for for your startup and the moment in which it is located. Let’s start by defining the difference of each one.
raise capital It is nothing more than looking for a fund to finance the project, there are different ones: private, corporate, angel, among others. These funds grant capital in exchange for a percentage of the company, which makes them partners, therefore you can rely on their experience to grow the business.
On the other hand, the debt capital It is a loan that the company obtains, this can be through suppliers or financial institutions. This type of capital entails the payment of interest and there is an established period to liquidate it, so a percentage of the company is not compromised.
Cesar Mora, Executive Director of SME Banking and HSBC Mexico Payroll, says that raising capital or debt it is a strategic decision and each one has its benefits, but choosing the ideal one will depend on the need of the startup.
“If you want to boost the business and take it to the next level, perhaps the best decision is to raise capital, and what better way to approach people who have the expertise and add that know how What are you looking for”, he commented during the discussion panel “Challenges to finance the growth of your business”, carried out by HSBC and Endeavor.
The executive stressed that debt capital is more linked to asset investment, to support cash flows and are short-term loans. In addition, it gives some predictability of the payments that have to be made.
“If it’s about going to the next level, the answer goes to equity, but if the question is how do I organically grow my business, you definitely have to look at debt.”
While Luis Cervantes, General Director and Head of Office at General Atlantic states that the Private capital has two great advantages: access to financial resources and a partner who can accompany you on a trip.
However, it details the importance of preparing the processes to raise capital when required, such as creating corporate governance and a corporate structure.
“Never think about your business to raise money, nobody knows the business better than the entrepreneur. If you go and execute a business plan where you create a market opportunity by solving a real problem, the money will come.”
This is agreed by Helena Polyblank, co-founder of Mendel and Endeavor entrepreneur, who says that the debt part implies more demand and stability of companiesto. For this reason, it is important to create a startup with solid foundations, that seeks to solve a problem in society and that has well-defined objectives.
Entrepreneurs in resilient Latin Americans
Cervantes highlighted that they recently conducted an internal study at General Atlantic to find out What type of entrepreneurs has the best chance of success?or: a North American entrepreneur expanding into an emerging market or an emerging market entrepreneur in the United States.
The answer was forceful, there is much more chance of success thanthe Latin American entrepreneur reaching a developed market, why? because these entrepreneurs were successful in Latin America despite having everything against them; of not having access to so much capital and maintaining gigantic macroeconomic cycles.
“An entrepreneur who was successful in Latin America, by definition, is more likely to succeed in the United States because he had everything against him.”
The same goes for women who raise capital, “a female founder who has managed to take the company to the stage where General Atlantic invests, had to get there against all oddsin a world that does not favor the chances of success of that entrepreneur at all, and that alone makes the probability of success of that entrepreneur and our investment much higher”, he concluded.
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