Raising Capital: Strategies for Success
Raising Capital: Strategies for Success
What is raising capital?
In simple terms, raising capital it is the process a business goes through in order to raise money for growing or transforming in some way. If your business has reached the stage where you need to raise investment capital to grow and develop, being well prepared and adopting key strategies for success will greatly increase your chances. Here are four key strategies to consider when raising capital.
Consult Your Team
If you are at the stage of raising capital to fund the development of your business, you will likely have in place a team of professionals. It makes sense to consult with them and tap into their creativity and experience. This is a good launching point. As with any business transaction, raising capital requires considerable planning and preparation. Get everyone on the same page before you start.
The more junior and less developed your business is, the more expensive in terms of rates or dilution it will be to obtain investment capital. Carefully consider how much of this expensive investment capital you need in the first stages. As your business develops and grows you will be able to raise capital at lower rates and with less dilution. There are many ways startups and corporations can raise capital, but broadly speaking they fall into two categories: equity raising and debt raising.
Potential investors are usually savvy business people. They will quickly form an opinion to invest, or not to invest based on first impressions. How do you make a good first impression?
- Have at least a basic business plan, explaining where you want to take your business, how much capital you need, how that capital will be deployed and other basic information. It needs to look professional.
- Make sure you have pro forma financial statements demonstrating how the potential investor will benefit from their investment. When you're talking about commitment of large sums of money to a business proposition, return on investment is a high priority.
- Put together a physical binder, or digital data room of key documents concerning your business. Make it easy for the potential investor to perform due diligence on your business.
- Have a term sheet setting out all the terms and conditions of participation in your capital raise.
- One of the first places a potential investor will look is at your website. Make sure you have one, and that it is tasteful and represents your brand. A good website is a simple way to look established, successful and that you are going places. Even something very simple is better than nothing at all.
- Know your stuff. You should be well prepared to answer questions about your product or business. You will need to know the financial numbers and be able to explain how the investor will see a good financial return on their participation in your business. Be fully prepared to explain the form of the investment, how it works and the exact terms.
If your business or product is unique or innovative make sure you protect your intellectual property. At the very least you will want potential investors to sign a non-disclosure agreement. To maintain a competitive advantage in the marketplace, businesses must keep the ideas and innovations that they are working on under wraps. A non-disclosure agreement is a legally binding contract that binds a person to secrecy for an agreed upon length of time. Alternatively, a mutual non-disclosure agreement is useful and should be considered where both parties are sharing confidential information.
Adopting these key strategies will help you make that critical positive first impression and be a launching pad for success when raising capital.
Business Lawyers in Victoria
As part of our growing initiative to reduce the level of legal work and documentation that founders have to manage, our law firm, Velletta, Pedersen, and Christie Lawyers has developed a streamlined process in assisting Founders and Advisors formalize and execute their expectations. Whether your company is in the Idea Stage, Startup stage, or Growth stage, our experienced business lawyers can provide valuable advice to avoid common pitfalls that startup businesses encounter while rapidly expanding.
A Cautionary Note
This article provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
Michael J. Velletta is a senior lawyer and Partner at Velletta, Pedersen, Christie Lawyers with decades of experience, sitting on the boards of a number of publicly traded companies in Canada, Europe, and Australia.