Tech companies often don’t fit the credit models used by traditional lenders. The main reason is that they have few tangible assets such as inventory or equipment to provide as collateral when looking for a loan.
As a result, 61% of tech entrepreneurs say it’s difficult to get funded at the pre-commercial stage. And while obtaining financing does get easier as the business grows, many later-stage tech leaders still reported finding it difficult to obtain the capital they needed to grow their business.
Tip: Work with lenders who understand tech business models
Take a broad view of all the financing options out there. “Venture capital is often the first option that comes to mind when thinking about financing a tech business, but other sources of financing can often be just as interesting,” says Jasmin Ganie-Hobbs, a technology financing specialist with BDC.
These include initial public offerings, private equity, joint ventures, M&A, public funding and grants, and traditional loans.
“Debt is such a severely underused option but has such great benefits,” says Ganie-Hobbs. “First of all, it allows you to retain control of your business, and minimize dilution.”
Having helped finance hundreds of tech businesses, she says that tech owners have to find lenders who are able to look at their company with a “special “tech” lens”.
“Many companies that we finance do not meet traditional credit metrics, have no tangible security and are not cash flow positive at the time of the loan, but they are great businesses,” Ganie-Hobbs says. They are growing, they are making money, and they have great market share.”
She also advises tech entrepreneurs to prepare a detailed business plan, a succinct revenue generation model, cash flow forecasts and fiscal projections with detailed assumptions before meeting with their bankers.
2. How do I keep on growing my revenues and customer base?
There’s a common saying in the tech world: “Go big or go home.” This reality puts a lot of pressure on tech CEOs who have to keep their company growing, no matter the circumstances.
“You can’t just plateau in tech, the industry changes too quickly,” Ganie-Hobbs says. “You need to constantly think about all of the enhancements, the tweaking and the add-ons that you’re going to need to gain more customers and open new markets.”
Tip: Develop partnerships
Consider strategies such as acquisitions, joint ventures, distribution deals and exploring global markets.
Strategic alliances, for example, are a proven way to quickly buildup your customer base and enter new markets. Yet, only one in five tech CEOs said that they are currently developing business partnerships.
First, you need to determine your strength and weaknesses and then look for partners who can complement you.
“You can leverage your partners’ strengths and expertise to help your business grow much faster,” Ganie-Hobbs says.
3. How can I win the war for talent?
There is absolutely no doubt that having a great team makes all the difference between success and failure.
And while it’s common knowledge that technical staff can be hard to recruit, the study reveals that C-suite technology executives are even harder to find.
In fact, more than half of tech CEOs reported that key management team members were the most difficult to recruit. One third (35%) said that they are having a hard time finding marketing staff, and only 21% said the same for IT, programming and development employees.
Tip: Develop a distinct culture that can’t be easily replicated
“Top tech employees constantly have recruiters banging on their doors,” says Ganie-Hobbs. “So having the best environment to work in and creating a great corporate culture is the key to creating a successful retention strategy.”
Giving company shares to key people is becoming a more and more common practice in tech companies. Yet, being a good employer doesn’t necessarily mean that you have to break the bank. Low-cost alternatives include flexible working hours, the opportunity to work from home, and the chance to be innovative and creative. Provide employees with access to additional training programs and give them opportunities to grow.
Then, there are the perks! These can include free food, beverages, pool or foosball tables.
“The very best tech companies have a distinct culture that can’t be replicated, so people don’t want to leave and become personally attached to their professional environments” Ganie-Hobbs says.
4. How do you stay at the leading edge in an ever-changing environment?
The pace of transformation in the tech industry is unique. Changing regulatory environments, technology that quickly becomes obsolete and increasing competition are just a few of the challenges tech businesses have to deal with.
In fact, nearly a quarter of tech entrepreneurs say that product development cycles will be a major challenge in the next two years.
Tip: Always think two steps ahead
Ganie-Hobbs says that her high-growth clients always think ahead.
“They will do one round of financing and as we are dispersing that money we are preparing for the next phase,” she says. “The industry changes so quickly; you need to have a constant-rolling strategic plan that is moving you forward.”
One way to remain focused on innovation is to put together a strong advisory board comprised of industry experts. This group of trusted advisors meets regularly to help ensure that you are making the best business decisions, and that you are developing a long term vision for your business.
“It’s about having the right corporate culture, being surrounded by the right people and not being afraid to fail,” she says. “The need to be in a constant state of innovation is not even optional. It’s critical!”