OPINION: New show generating business interest
OPINION: With Shark Tank now on Australian television, it has been creating some interest for those interested in business and, in particular, those who have visions of raising funds to grow a business.
Shark Tank is similar to the English show called Dragon's Den.
The show is about a creator of a business model, invention, or other idea pitching that idea to a panel of potential investors.
The investors ask questions and then decide whether to invest or not.
If you are a successful contestant you get the funds asked for in return for giving up some equity share in your business model.
Arguably of higher value is the expertise which comes from having the investor as part of the business.
The successful contestant wins in more than one way: they get the required funds to grow their business, they get a mentor who is experienced and successful, they get immediate exposure through the show and they get access to their investor's business networks.
This makes it a very effective proposition for the business, if they are successful.
There is a downside too.
You lose some of the equity in your company.
If you aren't successful on the show, your idea could be brutally treated on national television making it much harder for you to raise funds elsewhere.
With equity funding being more expensive than debt, why do start-up businesses use the former? Risk.
Equity funding means giving up a share in your company, whereas debt funding does not.
Debt funding, though, requires an ongoing commitment to paying it back.
This in itself can be catastrophic for a business that is just going through the start-up phase where cash flow is, at best, unpredictable.
Debt funding usually has numerous guarantees associated with it, which in itself places your personal assets on the line.
Should you be unable to meet repayments, debt funding can very quickly mean the end of your business venture.
So is debt or equity funding right for you? It depends on your situation, but if you need capital in your business, weigh up your options carefully and discuss them with your advisers.
- Adam Vieglais is the founder of FABsolution and a lecturer, USQ Fraser Coast.