Fundraising advice for raising capital from founders
Need fundraising ideas that work? Read on to know more..
By teammarquee . January 27, 2023
While fundraising is now easier than it was a few decades ago because there are so many feasible options to raise funds, choosing the right one can seem overwhelming. Giving away a part of your business might seem unimaginable, but you will need to do it at some point in your raising capital for your business to be an industry-leading firm. You can only bootstrap for so long. Firstly, know that knowledge is the key to retaining control over your business while raising finance. To raise money, it’s critical to know the cost of raising equity you can afford at your stage of the business lifecycle. First, let’s start by being aware of the different stages of raising capital.
Stages of raising capital for businesses
- Seed Funding: This is the first amount of fundraising a company officially raises while building the product and strategizing market penetration.
- Series A funding -Typically used for growth and research. Simultaneously, networking with VCs and angel investors is done now. The class of investors here are; super angel investors, venture capitalists and accelerators.
- Series B funding – This is the phase wherein you want to push your business beyond the development stage. The key difference between Series A and B is the new class of investors you choose from – namely, late-stage venture capitalists.
- Series C funding – Having an established base, the purpose of each round at this point is to exponentially increase a company’s market capitalization.
- Series D funding – Although rare, firms use this sort of option to increase capital when they might want to enter the merger and acquisition phase. Some of the investors here are late-stage VCs, private equity firms, banks and hedge funds.
- IPO or Initial Public Offering – This means listing the company’s stock to be publicly traded for more funding, or for an ownership exit.
Uses of Fundraising
Raising funds helps startups in numerous ways. They can finance their operations and invest in necessary resources such as technology and talent. Fundraising for startups also helps expand the business by increasing marketing and advertising efforts, R&D, and exploring new markets. Moreover, having a strong funding base can also help a startup attract and retain talented employees and can also be used as a measure of success and credibility when seeking out partnerships or additional funding in the future.
Ways to Raise Capital
Solid fundraising advice would always tell you to explore as many options as you can. This helps you access where you are and what exactly you need. Maybe giving away equity isn’t the best way for you to raise funds. Below are some of the options for raising finance:
- Angel Investment: This is when an individual investor is providing fundraising for startups in exchange for equity in the company.
- Venture Capital: Venture capital is a type of private equity where investors provide startup funding with the expectation of having long-term growth potential.
- Crowdfunding: When a large number of people invest small sums of money, for a stake in the business. Increasing capital via equity crowdfunding is carried out from specific online platforms such as Wefunder and StartEngine.
- Incubators and Accelerators: Incubators and accelerators provide funding, mentorship, and resources to startups in exchange for equity in the company.
- Government Grants: Some governments provide funding for startups through grants under certain schemes. They do not need to be repaid.
- Bank Loans: This can be done via traditional bank loans, but require a strong credit history and collateral.
- Friends and Family: This might not seem to be a viable option for everyone, but it might be easier than other fundraising options.
- Revenue-Based Financing: This happens when a firm receives funding in exchange for a percentage of future revenue.
Pros and Cons of Raising Equity:
- Access to Capital: Startup funding allows new businesses to access the capital they need to launch and grow their operations.
- Expertise and Support: This can include mentorship, business advice, and connections to potential customers and partners.
- Validation: Securing funding from investors can be seen as ‘proof’ of the business idea and helps to attract additional investors and customers
- Faster Growth: With access to capital and support, firms can now grow more and take advantage of new opportunities.
- Dilution of Ownership: This is a common battle when trying to raise finance. Giving away a part of your equity can seem overwhelming.
- Loss of Control: This could mean voting rights now going to investors while making key decisions.
- Pressure to Perform: Investor pressure increases stress and pressure on the startup founders
- Risk of Failure: If the business fails to take off, a lot of losses have to be borne.
How To Raise Funds
Good fundraising advice always will tell you to explore the pros and cons of the available fundraising options open to you. Fundraising ideas may seem generic from the outside, but each business has its own specific needs to cater to. For example, fundraising ideas for nonprofits include Donor Acquisition, Donor Retention, and Event Engagement which don’t necessarily mean the same as another startup’s fundraising ideas. Now whether you’re looking for fundraising ideas for nonprofits, or any other business, there are some guidelines which you can follow nonetheless.
- Set Your Business Value
Don’t overestimate, but don’t underestimate either. Although valuation is almost always out of your control during this type of financing, do your homework and use a professional appraiser if needed.
- How Much Funding Do You Need?
There are three ways to figure out how much to raise:
- How much capital do you need exactly
- Current stage of your business’s life cycle
- Valuation and dilution preference.
- Your Pitch
Most companies are expected to have a business plan, pitch deck, and product demonstration. Having thorough product documentation and references would also be helpful.
- Pick an investor who specializes in your space
Why? For startup investors to invest in startups, they need to have a thorough idea about the space they’re getting into so that they can create value in the future. This will help you gain a competitive advantage.
More often than not, the larger the investor’s outreach and social connections, the easier it is for your company to come to fruition.
This is a common feature to raise capital amongst most local businesses. A lot of entrepreneurs fuel their business expenses through income already earned in the previous quarter. This is particularly helpful because there’s no cost of interest or ownership stake given to angel investors.
Giving away a part of your business will feel brutal, but remember that all the best entrepreneurs in the world have had to do it, and if they had another chance – they’d do it all over again. Don’t focus on what you’re losing, but instead on the countless opportunities you now have to explore. At Marquee Equity, we understand what exactly entrepreneurs need and identify how to get it for you. We connect you to the right investors and help you get the best deal to boost your business. Give us a call at +1-213-600-7272.
We optimize & accelerate growth for already great products.
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