{"id":3260,"date":"2023-06-13T14:40:17","date_gmt":"2023-06-13T14:40:17","guid":{"rendered":"https:\/\/fidelmanco.com\/?p=3260"},"modified":"2023-06-13T14:41:52","modified_gmt":"2023-06-13T14:41:52","slug":"12-facts-early-companies-need-to-know-about-raising-capital","status":"publish","type":"post","link":"https:\/\/fidelmanco.com\/12-facts-early-companies-need-to-know-about-raising-capital\/","title":{"rendered":"12 Facts Early Companies Need to Know About Raising Capital"},"content":{"rendered":"

If you’re launching a start-up, you know how difficult it can be to gain traction for a new idea and make it a reality. In reality,\u00a020.8% of private sector businesses<\/a>\u00a0will close within their first year.\u00a0 Additional ongoing funds for advertising, product development, and marketing models are also needed.<\/p>\n

To give your business a fighting chance, you need to know as much about how to raise capital. That includes learning about raising capital.<\/p>\n

Understanding how to raise capital for your start-up is one of the most challenging tasks for a new business owner.\u00a0Among the most effective methods of raising money for early-stage companies are venture capitalists, crowdfunding, and angel investments.<\/p>\n

Today, we’ll take a deep dive into what you need to know about capital sourcing.\u00a0Start by reading our 12 facts you should know about raising capital.<\/p>\n

1. Understand What Raising Capital Means?<\/h2>\n

Raising capital is a crucial part of any business. For a start-up, it can seem like a daunting task. In its simplest form, raising capital is the process of obtaining financial resources in the form of debt, equity, or other investments.<\/p>\n

The hard part comes when you need to find those financial resources.\u00a0The process of getting money from investors to finance a business means having a plan of action.<\/p>\n

You’ll need a way to infuse cash into\u00a0your\u00a0business. You’ll start with creating a business plan. Consider a business plan as the blueprint for starting a company.\u00a0Most business plans include a crucial step where you brainstorm ideas for a\u00a0fundraising strategy<\/a>.<\/p>\n

Include alternative ways for borrowing money that doesn’t include a traditional lender in your business plan.<\/p>\n

2. Understanding the\u00a0Types of Capital<\/h2>\n

When starting a company, it’s crucial to understand the different types of capital you can obtain. Part of your fundraising strategy is to become familiar with the different types of capital available to you.<\/p>\n

Most fundraising for new companies will include these types of capital.<\/p>\n

Debt Capital<\/h3>\n

A company or organization can raise debt capital by borrowing money from a lender or investor that must be repaid with interest. This type of funding is a valuable tool for businesses. It can fund expansion, acquisition, and working capital projects.<\/p>\n

Most debt financing is provided through loans, bonds, or other forms of debt. The investor determines the financing terms, including interest rates, repayment terms, and collateral.<\/p>\n

However, companies that over-leverage and over-borrow can become weighed down in debt if they fail to manage their financial obligations.\u00a0As a rule of thumb, a firm\u2019s\u00a0debt-to-equity ratio<\/a>\u00a0will combine short- and long-term.<\/p>\n

Equity Capital<\/h3>\n

Equity capital is money that investors put into a business in exchange for shares of the business. It’s the primary source of funding for a business and can also be used to finance debt.<\/p>\n

Once investors put money into a business, they’re at risk because if the business goes bankrupt, they won’t get their money back until all the other creditors have been paid out first. There are\u00a0various\u00a0reasons why people are willing to invest in a business for financial gain.<\/p>\n

Non-dilutive Capital<\/h3>\n

Non-dilution\u00a0capital\u00a0is a type of financing that doesn’t require you to give up any equity in your business. It’s vital for start-ups that want to get their business up and running while also trying to keep dilution to a minimum to pay off the debt faster.<\/p>\n

3. Advantages of Raising Capital<\/h2>\n

There are several advantages to raising capital when starting a new company. Most people either don’t have the finances on hand or don’t want to tap into their savings. The alternative is to raise financial capital.<\/p>\n

Having access to additional financial resources is vital to your success. Additional resources will allow you to focus on the other aspects of your\u00a0business plan<\/a>, like finding the perfect location for your business. You’ll also need marketing and inventory.<\/p>\n

Another advantage of raising capital is the ability to expand your business when the time is right. There is no magical time frame for when a new business will blossom. However, it\u2019s a proven fact that many new businesses never make it to their one-year anniversary.<\/p>\n

A third advantage is known as the potential increase in the business valuation. It is one of the things investors\u00a0consider when critiquing your fundraising strategy.<\/p>\n

Your company’s potential value refers to the amount of money held back by an asset or thing because of its unique place in the market or how it’s set up. It’s usually measured in terms of people, patents, intellectual property, ideas, and\u00a0more tangible proof of your business proposal.<\/p>\n

4. Ways to Secure Capital<\/h2>\n

There are different ways a raise financial capital. When you decide to start a business, it is vital that you look at all options. Once you clearly understand each method, you can determine which methods work best for your business plan.<\/p>\n

Luckily, no rule says you can only choose one fundraising method for new companies. Below are your many options to explore.<\/p>\n

Debt Financing<\/p>\n

Debt financing consists of borrowing money from a traditional lender. To go this route, you need to have a decent credit score. Plus, it helps to have an established relationship with the lender already.<\/p>\n