Raising startup capital is a crucial part of establishing your business as an entrepreneur. Many people want to start a business, but the common problem they usually face is where to find the startup capital.
While banks and other financial institutions offer business loans, there’s a fear associated with debt and bankruptcy if the business fails. One option to source funds when starting a business is capital raising. But, is this funding option feasible for everyone? Find out the answer by reading below.
What Is Capital Raising?
Raising capital or capital raising pertains to obtaining capital from venture capital sources or investors. This form of fundraising can be accomplished through different methods, such as raising money via an app, like one offered by CakeEquity.com.
Can You Start A Business Through Capital Raising?
The short answer is yes. But, how can you raise capital for your startup business? What are the requirements, and what’s the step-by-step process?
Tips When Creating Your Capital Raising Strategy
Creating a capital-raising strategy entails building a roadmap on how you can obtain funds your startup business needs to fuel its day-to-day operations and growth. Capital raising involves searching for new investors and writing proposals or pitch decks.
Check these expert tips when creating a capital-raising strategy:
- Set your business goals.
- Be prepared to answer tons of questions.
- Look for potential investors, starting within your social circle.
- Prepare to present your proposal or pitch.
Step-By-Step Capital Raising Process
Building a capital-raising strategy involves the following steps:
- Set Clear Goals: In which aspect of your business do you need extra funding? A business may need additional funding for costly equipment, IT infrastructure, or lease. Set clear goals so you can present them clearly to potential investors.
- Tackle Financial Details: Investors want to hear specifics. So, how financially confident are you? Research is essential so you can project your future revenue in detailed terms. Review the particulars of your business and determine how investors will benefit from the deal. Are you willing to offer your company’s partial equity stake to your potential investors? Or, do you prefer to repay with interest? Present something appealing by determining the best deal for you and your investors regarding exclusivity, redemption rights, liquidation preference, control provisions, and others.
- Find Investors: Investors are everywhere, and you can reach them via their company websites or by sending them an email. Angel investors have a high net worth who can contribute enough, so you don’t need other investors. An angel investor always expects a high return, actively participates, and has a say in your business’s daily development. On the other hand, are more suitable when expanding your business because they provide a higher amount of capital funds than angel investors. They work with other investors to raise funds for your business. Crowdfunding platforms are also available to help with capital raising.
- Practice Your Pitch: Always think from the investor’s point of view. Even if you feel confident in public speaking, it will help to practice your pitch for a few rounds, keeping in mind the important content. Discuss your goals, marketing and monetization strategies, and key performance indicators.
- Meet With The Investors: Show your professionalism and respect when meeting with potential investors. Be at your best, go straight to the point but not overly bragging, and avoid unnecessary details that may cause boredom and waste time.
The Sweet Spot
Your company’s valuation can make or break an investor’s decision regarding the capital raising deal agreement. Take a look at the following business valuation tips to keep you guided:
- Decide How Much Equity To Give Away: Determine the percentage of equity you're willing to give up. Are you ready to give 10% to 20% of your company’s equity?
- Examine All Your Assets: Assess your assets before valuation so you can make the necessary adjustments.
- Rely On Experts: Determine your startup company’s valuation by getting a forecast revenue from experts since you don’t have any financial performance history yet as a first-time entrepreneur.
You surely can start a business, and one of the best ways to do so is by raising capital with the help of interested investors. Above, you've already learned the important tips and steps on how to improve your chances of raising enough capital for your business. Put yourself in the investors’ shoes and think about what you want to know about and hear. In this way, you can encourage investors to shell out their money and agree to fund your startup business.