In this video, I share two of the common ways on how companies raise capital investment. I hope it benefits you, while you try to raise capital. In case you need coaching or assistance in preparing to raise capital, please feel free to contact me.
I am sharing some information, to the best of my knowledge, on raising #capital. Raising capital is a common exercise we see nowadays for growing start ups and businesses, whereby funds can be raised from multiple channels such as bank loans, angel investments, investment groups, family offices, hedge funds, private equity funds, crowdfunding or even ICOs.
The two common ways to raise money is (a) investment loans (b) trade equity financing. Usually for a small size business, aiming at profitability – investment loan is a better option to raise capital for marketing to earn higher revenue. The loan is locked for an agreed period of time subject to be fully returned, alongside with the interests promised yearly (presumably more attractive that what the banks offer).
For scalable companies however, trading equity makes more sense. In order to grow, they could be multiple rounds of capital raise each with a higher evaluation depending on progression. The investors aim to cash out their shares (at much higher value) at IPO, full buy out or re-selling them back at another time.
Always ensure your pitch deck best illustrates your vision to support your efforts in raising #capital.
As an company,
1. Raise capital investments to a Pte Ltd company, anything can happen to a business by tying it to a sole proprietor will lead to personal bankruptcy.
2. Raise only if you know you are ALL in. Do not take funds if you think you are not going to pursue the business a year from now, see yourself as a permanent driver of the business willing to go through all the challenges and one who tries hard never to give up.
3. Note that your shareholder if traded equity, is your permanent board member for many years – as much as you need capital, careful with who you select as your shareholder.
As an investor,
1. The injection of funds is a 50/50 risk. And while you trust a Founder, a company is made up of many employees and clients. While a Founder will try her best never to fail her own company, note that there are several factors in play that will pull the business down in other ways, and occasionally beyond the Founder skills to save. This will result in losses of your investments, and the obligation to return investment do not exist when the company no longer exist.
2. However, the business can go completely successful which will return you the investment you had hoped for. If you are a shareholder of a company, your returns is way more than your capital. People grow rich through private equity investments.
Always have a legal mandate to ensure the obligations of terms between an investor and entrepreneurs is fulfilled, before capital investment.
Short disclaimer: The evaluation of the company at each stage of equity sale is the current evaluation plus the capital raise. For e.g. if my company is worth USD 2million and an investor pumped USD 200K. That means he will own percentage of my company calculated as USD200K of USD2.2Mil evaluation. As his funds are meant for capital raise, that adds on to the final value of the company. Shareholders are subjected to dilute over time through multiple rounds of funding. It’s positive meaning they now get a smaller piece of a much larger pie.