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Whether your company is online or at a brick-and-mortar location, there comes a time when almost every company needs a cash infusion. Launching a business is done by forecasting the revenue that will be generated and the expenses that will require payment. The forecast, however, may or may not land in the correct space and underfunding occurs.
The same issue can occur with expansion funding. Expenses may be higher than expected or revenue may be lower than anticipated, resulting in the same need for a capital raise. If, or when, this occurs, there are options for online and brick-and-mortar company owners to obtain funding via a number of channels.
In the following paragraphs, we’ll discuss including a venture capital consultant in fundraising, the various portals for funding and outline which may be best for your company.
Why Venture Capital Consultant to Raise Funds?
If you are wondering why we’d suggest including a venture capital consultant to raise funds, we want to be clear: there is no more effective or efficient way to raise funds than via the assistance of a venture capital consultant. Here’s the backstory to this suggestion: Individuals within your company can oversee all that is needed to conduct a capital raising presentation; however, those individuals will need to devote many full days of attention to the process; perhaps weeks or, possibly, months.
The process of gathering data, building reports, assessing information, conducting a full valuation of the company, and other items can be an exhaustive process. A venture capital consultant takes on the full task of oversight and procedural requirements in preparation for the presentation to investors, while the company continues to be led by all stakeholders with full attention to the business at hand.
In addition to the above, potential investors need to be sourced, vetted, and invited to the capital raising presentation. Unless there are multiple contacts within your company, a venture capital consultant is the person to research, locate, vet, and invite suitable potential investors. The only role a venture capital consultant cannot fulfill is that of being in attendance at the capital raising presentation, as it is against the law. For all of these reasons and more, we highly recommend the addition of a venture capital consultant to your team.
Moving toward various types of funding to be considered, you’ll want to select the type that most closely conforms to your company’s situation. Debt funding can be quick and easy, equity funding is just as helpful, and other sources of funding may also apply.
Check out these popular choices:
Option 1: Debt Capital Raising
Capital raising in this scenario is based on loans from sources outside the company to be used for startup or expansion purposes. This funding creates a debt that has to be repaid on a scheduled basis; however, a great amount of cash can be raised in this manner.
Loans are offered at a modest interest rate to potential investors with no equity included, and when paid off, there is no further liability to investors. Debt capital raising offers a secure start or expansion with a pre-determined repayment schedule: investors like it, although company owners must maintain repayments on schedule, which can be difficult in the startup phase.
Option 2: Equity Capital Raising
An equity capital raise is attractive to investors because the risk involves a reward on an immediate basis. The equity of the company is sold as private stock; investors who buy into the offer receive the value of the stock. The investor, however, is most interested in the rising value of the stock and is taking a risk that the value will continue to rise as the company grows. The company owner releases a portion of private stock to investors but receives funding immediately. Whether or not the equity is refunded is not primary as long as the value of the stock continues to rise.
Option 3: Hybrid (Convertible) Capital Raising
A hybrid raise is a combination of both methods of raising capital. Investors receive an “equity promise” in return for funding, and companies receive funding without timelines to repay that funding.
Option 4: Pre-seed or Crowdfunding Capital Raising
Pre-seed funding occurs when a company has just launched and is prior to any returns. Typically, family or personal associates will create the funding needed to scale operations. Crowdfunding is a collection of investors who fund a product with the proviso that the first release will include product shipment or other equity to the investors.
A venture capital consultant brings everything needed to your table, including funding options on behalf of the company, preparing for the presentation, providing potential investors, and overseeing the entire process. Whether your company is launching or expanding, consider the value of each aspect of capital raising and determine which will serve your company well. We wish you success!
