As a new entrepreneur starting a business, raising capital is crucial for long-term success. Without sufficient capital, starting a business and competing in the market can be challenging.
While every business/firm faces unique obstacles and aspirations, capital raising is a common priority. This funding promotes overall business development and opens up better opportunities in the future.
Raising funds is important from the beginning and remains so as the business expands. The investors you work with also change over time; in the beginning, you may work with friends and family, but later on, you may work with angel investors or larger institutional investors.
Let us take a look at a few of the methods that you can use to generate funding for your business before you get started.
Steps for Preparing to Raise Capital
Here are all the steps you need to take as an aspiring entrepreneur to raise capital for your dream business:
Step 1: Assess your needs
Businesses need capital to either expand or accelerate stagnating growth. Fast-growing businesses (food, healthcare, finance and IT sectors) need capital to satisfy essential business demands, but slower-growing businesses (bookstores, real-estate agencies and family-owned restaurants) need capital for expansion.
If you’re involved in capital raising planning, you have to determine exactly how much capital you need and how it will be spent. Investors demand a return and equity, so you need to avoid deals that reduce your ownership by more than 25%.
Step 2: Evaluate the timing
Most businesses start with "pre-seed" funding, often sourced from founders themselves, along with support from friends, family, or accelerators. After three to six months, founders typically seek additional "seed" funding from angel investors and institutional backers. Gaining Series A (giving potential outside investors the chance to put money into a developing business in exchange for stock or a portion of the company) funding and later rounds usually take a year or two. It is advised by experts to budget for a two-year cash runway between rounds.
In case you want to avoid shortfalls, you’ll need to prepare funding requests in advance and it has to be secure enough to last until the next round to prevent cash shortages. Consider factors like seasonal market changes that may need larger funds.
Step 3: Develop a projection for cash flow
During the capital raising process, investors expect stable company finances and clear growth plans. These help investors understand where their funds are going and how ambitious the overall business goals are.
In ideal conditions, you should include various growth possibilities in your forecast, along with important choices like hiring more people or extending your product range. This demonstrates your flexibility, determination, and openness to innovation.
Step 4: Design an effective business plan
It’s time to create a business plan if you didn’t already have one when you began. A business without well-defined and realistic plans will find it harder to attract investors. So, when you’re looking for funding, focus on how your business will earn profits to deliver strong returns.
You should make your capital raising plans clear and convincing, and to the point. Steer clear of technical terms and be coherent about your financial plans. It is best to back yourself up with statistically backed projections.
Step 5: Organise your financial statements
During the process of capital raising, investors will always expect strong financial results on their investments. You need to make sure that all your reports, including your balance sheet, profit and loss statements, and financial projects, are up to date and correct. Investors evaluate development expenses, payroll, overhead, and profit margins.
Investors need to see a clear growth plan, consistent performance, and, most importantly, profit possibilities. If your books are disorganised and you need help with the capital raising process, you should think about hiring a professional.
Step 6: Explore your alternatives
You can finance a business through various methods, including bank loans, crowdfunding, venture capital, and angel investors. Every choice comes with its unique requirements and trade-offs. You have to thoroughly study how much you qualify for, the potential dangers, and if you need to give up your control over your business for that perfect investment.
Weigh the pros and cons before you choose from the many methods of capital raising.
Step 7: Research potential investors
Choosing proper investors is the next step after deciding on the kind of funding. You can meet potential investors through:
- Social gatherings
- Industry conferences
- Cold calling
- Family and friends
- Online platforms
Step 8: Conduct meetings and gather input
Once you identify potential investors, schedule appointments to pitch your ideas. You have to be truthful and upfront when making your case. Ask for feedback to better your presentations in the future if they decide against investing.
Even if you find a potential investor that can help you start your business, don’t stop meeting new investors as you can get yourself better deals for future investment rounds.
Conclusion
When it comes to launching a new business, investors play a crucial role in nurturing it with a considerable amount of initial funding. Knowing the ins and outs of entrepreneurship and essential business operations is necessary to kickstart your journey to claim success in the long run. However, do you know what else is essential to succeed?
Strategic leadership skills!
Building on this very important skill, Imarticus Learning brings you the Executive Certificate Programme for Strategic Chief Executive Officers – a comprehensive course created to nourish future CEOs.
