Capital raising is the process of seeking financial investments from outside sources, typically outside a company or business’s customer base, in order to expand a company’s size and/or geographic reach. Funds raised through capital raising are then used for expansion purposes. Depending on the objective, this might be as simple as budgeting for the next year of operations or it might be complex enough to meet a startup company’s entire operating budget for a whole year.
Capital raising for a startup company is an alternative to bootstrapping. It can be used as a stepping stone to finance expansion or as a funding source for other business needs that the business owner and/or management team would like to meet.
Capital raising can be conducted in a variety of ways, depending upon the type of capital being raised and the resources available to the company. Examples of some capital raising methods are:
Leveraging current relationships: Business relationship with other businesses and individuals could be used to secure funds necessary for the expansion of a company through. It is however crucial that an individual going this route has a solid reputation and can conduct his personal and business dealings honestly and ethically.
Selling equity: Selling shares or company’s equity can help fund a variety of needs for a startup company, including expansion. If one chooses to sell equity, the advise of an attorney would be indispensable and subject to regulatory approvals.
Raising a loan: There are a variety of sources for raising a loan, but it’s important that one qualifies with a solid business plan.
Raising venture capital: Venture capital can be used as either an alternative or as an alternative to the more traditional methods of fundraising mentioned above. However, one must be able to perform the due diligence required to ensure the company is ready for venture capital funding.
Raising angel capital: Angel investors can provide startups with financial support often through an IPO or through getting bought by another company. Like venture capitalists, angel investors require due diligence prior to making an investment.
Getting customers to pay for your expansion: A business that has a direct relationship with its customers (such as e-commerce, consulting, etc.), can get them involved in the process of expanding the company. This can be done through crowdfunding or through other methods designed to raise money from a customer base.
The aforementioned methods are few examples of the many ways to raise capital for a business. One method may work for one company while another may work better for another company.
There are many things one can do to ensure that a business reaches its goals, but one of the most important things is making sure you’re using the appropriate capital raising method for a particular business.