Funding Your Agency
Funding Your Agency
Key Funding Strategy Issues
Getting funding of any kind can be troublesome.
First, let me say that service-based agencies have low valuations unless they a proprietary technology or process, or have a specific niche or vertical market expertise like pharmaceutical, healthcare, education or auto. Geography may also be a benefit. This is one of the reasons it’s important to specialize.
For the most part, agencies do project work, and there’s little recurring revenue. Clearly, having long-term, established clients is a huge benefit; but, for the most part, these relationships are built by people. So a key question is, will that individual remain with the Company, or is the relationship in question?
For agencies, the only thing that really matters is cash flow. I’ve talked previously about operational efficiency, so let’s assume your agency is profitable, you have the right pricing model, and you make sure billing and collections are on time. While your P&L is a nice report card, unless you’re raising capital, defending your loans, or considering an exit event, it really doesn’t matter.
So what do you do? The first step is to insure you have enough cash for payroll and other fixed expenses – typically three months minimum.
Raising capital takes time and the funding strategy must always align with your other strategies. Investors want to review your revenue model – they want to make sure “the dogs are eating the dog food.” They want to know if your engagements are profitable. They want to know if you have differentiated positioning. They want to know who your key people are. So much more….
So what are your options? You should pursue a variety of options in parallel, never in isolation. As an agency principal it’s your responsibility to evaluate all alternatives.
Sources of Funding
The easiest of course is friends and family money – while potentially the quickest, I recommend against this. I can’t see mixing your personal and professional life.
Of course, there’s the route of attaining a Line Of Credit or small business loan, but it may require some kind of personal guarantee – if so, I recommend against this.
If you pursue outside investment consider what it is you need – is it just capital or do you desire participation from the institution or individual.
There are some early stage investors like Ben Franklin Technology Partners (BFTP) or First Round Capital – this can be a tedious process.
You should consider angel investors who have a specific interest/expertise in one of your target markets. Again, this is not easy raise funds. Angels tend to invest in groups (like LORE) and may have adopted various institutional practices.
Venture capital is almost impossible unless you are in biotech or healthcare. I doubt I would waste my time here.
Whatever option you pursue, it will require you develop a Business Plan to articulate your vision.
How Good Are Your Agency Funding Strategies?
In over 10 years of consulting, I’ve had the opportunity to work with a wide range of agencies, 50+, and in many cases, funding has been a key issue. As an agency specialist, I’m uniquely qualified to help you understand the pros and cons of various growth strategies as applied to your highly specific circumstances.
As this series of blog posts and videos continues, I’ll walk you through alternative agency growth strategies that can be applied alone or in conjunction with others. So make sure you get on my email notification list using the form in the right hand column on this page.
And if you’d like to have a personal chat about how your agency is dealing with growth (or the lack thereof) then please contact me directly. I’d be happy to provide you with a free consultation.
