If you are considering a capital raise, you’ll want to carefully examine the reasons for doing so. The following sample questions may be germane to the status of your business:
- Does the business need to grow or expand in some fashion?
- Does the company want a debt raise, equity raise or a hybrid raise?
- Is the company ready to launch, but requires a seed (or SAFE) raise?
- Does the company need to be restructured?
- Is debt financing required?
After considering the answer(s) that may apply to your business, you’ll want to consider engaging capital raising advisory services to assist in the process. At this point, questions will often be raised in-house regarding the need for a capital raising advisory service. Often, personnel will assert that funds can be saved by using an internal team to process and present to the investor group. And, this is true. An in-house team can present to a group of investors. However, there are several reasons why you’ll want to know when or if retaining a capital raising advisory service is in the best interests of your business. Let’s take another look at the questions:
Does the business need to grow or expand in some fashion? If the answer is “Yes,” and liquid assets aren’t in place to cover the growth or expansion, there are a few options available: bring in investors with a cash infusion to cover the costs. Be prepared to give up 20-40% ownership of the business to the investors; this will mean a lengthy payback for investors who will also have a certain amount of voting power within your business.
Does the company want a debt raise, equity raise or a hybrid raise? To define terminology, a debt raise is one that is a loan with some strings attached. The loan must be paid back with interest on a timely schedule. It may not be a low-interest loan and it may be a short-term payback, depending on the circumstances. An equity raise is a method of selling shares to external sources via the stock market. Investors may include venture capitalists, angel investors and private investors. Rarely, crowdfunding may also be an option. Hybrid, or convertible, raising is a beneficial combination of both debt and equity. Using both tools, the company can raise more capital by using the debt as a form of repayment while shares of the company remain intact. You’ll want to confer with a capital raising advisory service in order to determine which method is best for your company.
Is the company ready to launch, but requires a seed raise? Based on a Simple Agreement for Future Equity (SAFE), this form of capital contains several benefits for the owner and the company. The owner assumes the investment costs and converts it at some point into equity in the future. An important advantage is the SAFE note is not recorded as a debt; it is much more simple and flexible for new business owners.
Does the company need to be restructured? A restructuring may need to occur for positive growth, such as positioning debt for growth of one division or department. It is often considered when the business needs a form of a turnaround or transition in operations, as well.
Is debt financing required? Investors look forward to debt financing, as it is a constructive form of a loan with repayment schedules and interest that can be counted on as a tidy income. The only difficulty will be if the owner or shareholders cannot repay the debt at any point; repayment may not be collected or only after strenuous efforts have been made to collect on it.
If you need the services of a capital raising advisory group, you’ll want assistance in determining the best process and type of capital raise suits your business. A capital raise advisory service is exactly that: assistance is provided throughout the process of collecting data, examining resources, evaluating the value of the business, determining intangible and tangible value of the business, and examining patents, trademarks and digital assets. In addition, the advisory services will assist with preparation of materials for the presentation to investors and will create the related documents and visual presentation for the session.
The services offered by the advisory group will free the owner or shareholders from completing all of the above tasks and will do so in a very timely manner. If you are considering the process of capital raising, you will count the number of tasks to accomplish and you will, hopefully, engage the services of a capital raising group to seamlessly pave the way for you to achieve your goals. Wishing you the best of success!