Note from Editors:
Use these 7 questions – and see if you need to raise a round of #funding for your firm.
by Murray Newlands
There is no easy answer to that question because there are many factors involved in reaching a conclusion on whether funding should be raised for a capital-intensive business.
What’s Capital Intensive Actually Mean?
It’s first important to determine what capital-intensive business really means. According to Investopedia, capital-intensive refers to “a business process or an industry that requires large amounts of money and other #financial resources to produce a good or service. A business is considered capital-intensive based on the ratio of the capital required to the amount of labor that is required.“
Capital Intensive Industries
Typically, capital-intensive businesses are found in industries like oil, energy, transportation, and telecommunications. There is a significant amount of capital that must go into the production of the first product within these industries, but, once started, there may be economies of scale that can be gained that will eventually offset the capital intensity.
However, even other industries are finding it challenging to do more with less to roll out some of their products, including some of the hottest market segments today, including those new business models from the sharing economy and some IoT #startups.
And, these startups are proving that it is possible to become successful even after starting off in a capital-intensive way because they are getting significant amounts of money.
What to Consider Before Asking for a Lot of Funding
These two examples illustrate that it may not necessarily be a question of capital intensity, because many investors will still invest. Hence, the real issue is whether you have a viable “big idea” that can be turned into a sustainable, revenue-generating business. You need to think about the following before you ask investors for significant amounts of money:
- Is there any way I can reduce certain startup costs in order to be better positioned for using the capital I receive for the most intensive aspects?
- What type of return will investors want on such a significant #investment, and will I be able to deliver on that with a sustainable business?
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