The following are 5 important things you should consider before you plan to raise capital for your business.
Analysis- The Capital You Need:
The first question you need to ask yourself is how much capital you will need for your new business venture. The answer to this question is a strong business planning. A complete and comprehensive business plan makes you think about your business critically, and identify the capital required for your business to operate at each stage of growth.
Having a realistic picture about the current and future capital needs of your business can save you from chances of failure and debts. After all, even a freelancer needs to eat before his work is accepted, published and marketed.
Strategy- How to Raise Capital?
The next step after knowing the amount of capital you need is to look for the source from where you can raise the capital. This depends on your aim to raise the capital. The primary source of raising capital for startups is generally oneself in the form of home equity loans, credit card advances, loans from family, etc.
But in case you are thinking of taking your business to next level then you will have to look for private investors such as investment banks, accredited investors, and venture capital funds for capital. They usually propose an investment in the form of debt, equity, or a combination of both.
If you are confused about your options about the capital raising sources you can even consult a reputed business consultant or financial advisors. These people are expert and experienced enough to show you the right direction.
Explore- People Interested in Investing in your Business:
Raising large capital for your business can be challenging. Therefore, you will need to find out sophisticated investors seeking maximum return for assuming the risk of a new business venture.
The first option that strikes everyone’s mind is family and friends because they are less discriminating than professional investors. Other investor options are Venture Capitalists, Angel Investors, Institutional Marketplaces, or Crowdfunding Sites and Platforms.
Documentation- Know Your Legal Responsibilities to Potential Investors:
If you are seeking funds from individual investors, a legal responsibility towards them is necessary. These legal obligations and offerings are regulated through the US Securities Act of 1933 and the Securities Exchange Act of 1934.
A great business consultant will guide you through the procedures, making it simple for you to access the equity markets and compliance with the required regulations. This can help avoid future legal problems.
Negotiate- A Win-Win Agreement:
A funding event involves two parties- the investor and the company. In some cases there may be a single investor while multiple in some others. Some situations even reach to a take-it-or-leave-it while in others, there is intense negotiation. In some cases, parties strive to conclude at a point or an agreement that is beneficial for both.
Negotiation is a skill that comes through learning and practice. It is recommended to seek advice and assistance from a professional in order to make the wisest decisions.