How to raise capital

A definitive guide to capital raising strategies for all sizes of business

    Whether you’re an entrepreneur, a startup, or an established business owner, knowing how to raise capital can often mean the difference between success and failure. 

    At the end of 2018, there were over 1.4 million outstanding small business loans held by community banks, worth over $94 billion. But while community banks are a critical source of capital for small businesses, they have been declining. Luckily, there are more ways to fund your business. 

    In this article, we’ll explore several capital raising strategies and provide advice on preparing for a capital raise.

    Transform your capital raising with Ansarada Dealsstart your free trial today!

     

    How to raise capital: debt or equity? 

    There are two main ways to raise capital: debt financing and equity financing

     

    Equity financing

    Equity financing is when a company raises capital by selling shares of company stock. These can be either common shares or preferred shares. The main downside of equity financing is that the company is effectively selling off little pieces of business ownership.

    Learn more: Equity financing

     

    Debt financing

    Debt financing - also known as debt raising - is when a company borrows money and agrees to pay it back later. This is often by way of a loan, but not always. 

    The other option is to sell corporate “bonds” to investors, which mature after a certain date. Before they’ve matured, the company must pay interest payments on the bond to the investors.  

    Learn more: Debt financing
    Capital raise checklist

    Get the capital raise checklist

    A digitized checklist of all the critical data a company needs to prepare for a raise

    How to raise capital for a startup: 6 capital raising strategies

    1. Fund it yourself

    It might not sound ideal, but dipping into your personal savings is probably the easiest way to raise capital for a startup. Of course, funding the business yourself carries some risk. However, the fact that you have enough confidence in your business to invest in it can make investors or lenders more likely to commit funding to it too.

    2. Business loan

    Small business loans are still a major stepping stone on the road to success for many entrepreneurs launching a new business. However, loan approval is not guaranteed. You will need to meet specific requirements, like having an excellent credit score and being in business for a certain period of time. 

    3. Crowdfunding

    Crowdfunding is the most recent capital raising strategy to make it onto the scene. Thanks to the internet, startups like Elevation Lab (makers of the iPhone dock) and Oculus (later acquired by Facebook) have become household names. Kickstarter, GoFundMe and Indiegogo are 3 of the best-known crowdfunding sites.  

    4. Angel investment

    Angel investors are wealthy, accredited individuals that usually fund businesses alone but sometimes join other angel investors to do so. Ever seen the show, Shark Tank? This is what presenting to an angel investor can be like - so make sure you have a solid business plan and pitch ready, with all the key financial information at your fingertips.  

    5. Personal contacts

    You might not feel comfortable asking friends and family members for money but according to Fundable, 38% of startup founders report raising money through their loved ones. Not only that, but friends and family reportedly invest the most - more than $60 billion per year. However, mixing family and business may add more stress to the capital raising process than necessary. 

    6. Venture capitalist

    Venture capitalists tend to invest in more mature companies than angel investors, and operate out of a firm, rather than working alone. Compared with angel investors, venture capital firms invest in a lower ratio of businesses that apply for funding - but when they do, they generally invest more money. 
     

    Raising capital for business: be prepared

    Now you know how to raise capital, but do you know how to prepare for a raise? When getting ready for a capital raise, the first thing you need to do is get your material information in order. 

    Executive summary, company structure, business and marketing strategies, profit and loss statement, balance sheets, tax returns, bank statements and legal documents - they need to be lined up in order to secure that all-important funding. Our capital raise checklist can help you prepare. A digitized template, it contains all the critical data points that ensure a company is healthy and prepared for investment.

    Ansarada Deals™ brings together a purpose-built set of solutions into one fully integrated platform that delivers value across the complete deal lifecycle. Centralize all your capital raising activity with Deal Workflow™, project management tools, advanced data rooms, and AI deal insights.

    Now you can control every aspect of your raise from start to finish.

    Planning a raise?

    Discover how much easier it can be with Ansarada Deals - try for free today.
    Get started for free