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Whether you’re an entrepreneur, a start-up, or an established business-owner, knowing how to raise capital can often mean the difference between success and failure...
There are two main ways to raise capital: debt financing or 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.
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 make interest payments on the bond to the investors.
- Fund it yourself
- Business loan
- Crowdfunding For many people the term 'crowdfunding' conjures up images of campaigns and causes, but it’s also a highly effective system used by a great many start-ups and ambitious small businesses. In fact, the global crowdfunding market in 2021 was valued at $12.27 billion and is forecast to double by 2027.
- Angel investment Angel investors are wealthy, accredited individuals that usually fund businesses alone but sometimes join other angel investors to do so. Ever seen Dragons Den? 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.
- Personal contacts
- Venture capitalist
It might not sound ideal, but dipping into your personal savings is probably the easiest way to raise capital for a start-up. 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.
Small business loans are a major stepping stone on the road to success for many entrepreneurs launching a new business. As long as your business has yet to start, or you’ve been trading for less than three years, then X-Forces Enterprise may be able to provide support via the Government’s Start Up Loans programme.
We worked with Government to change policy to make this fund accessible to the armed forces community who were unable to get traditional or unsecured finance. As a result, we are now an official Delivery Partner of the Start Up Loans scheme, administered by the British Business Bank, offering an unsecured personal loan at fixed interest, together with free mentoring and support to get your business idea off the ground.
You might not feel comfortable asking friends and family members for money but a lot of businesses do this and friends and family often invest the most! However, mixing family and business may add more stress to the capital raising process than necessary.
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.
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 all need to be lined up in order to secure that all-important funding.
Whether you’re an entrepreneur, a start-up, or an established business-owner, knowing how to raise capital can often mean the difference between success and failure…
