Investor vs Sponsor

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I had the opportunity to briefly chat to Metro FM DJ, Mo Flava, on his afternoon show #TheDrive where we spoke about the difference between an investor and a sponsor. If you’re an entrepreneur trying to raise capital but you’re struggling to choose between the two, I’ve added a few of my talking points to help you make a better decision, enjoy!!

What is the main difference between an investor and a sponsor?

  • Investor: contributes capital with the expectation of a financial return
  • Sponsor: generally contributes to the operating costs of an event or program

What are investors looking for?

  1. Strong business model & plan
  2. Financials- previous and forecast
  3. Competitive advantage- what sets you apart from the rest

What are the pros of having an investor?   

  • Unlimited access to cash/ credit
  • Tap into other industries and have an expert in that field

What are the cons of having an investor?  

  • Giving away equity
  • Long term relationship

Investor tip: find someone whom you admire, have a relationship with or an industry expert who can take the business to different dimensions and help you expand accordingly.

What are sponsors looking for?

  1. Strong strategic plan
  2. Must align with their objectives
  3. Sponsorship has to be worth the value that they bring

E.g: if you get Coca Cola to sponsor your program for 2019, you’re promising to promote their brand to 25 000 people which is valued at R250 000 (assuming that each person will buy at least 1 can (at R10) in that year)

What are the pros of having a sponsor?   

  • Retain your company’s equity
  • There’s no debt to repay

What are the cons of having a sponsor?  

  • No loyalty- they can approach a similar company next year
  • Limited relationship- for 1 event or program or 1 year

Sponsor tip: jot down a list of potential sponsors, related and unrelated. Find out what their sponsorship objectives are and write a proposal that aligns with what they’re looking for. Get the timing right- too many people approach companies after they’ve allocated their budgets.

Final thoughts:

  • Don’t shy away from partnerships (they allow you to retain your equity but leverage off one another)
  • Crowdfunding or angel investors
  • Try to look for creative ways to increase your cash flow (e.g: add food packages or souvenir’s to the riding packs especially for tourists)
  • The markets are open for you to make an additional income from there and add it to your business

 

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