College of Engineering and Architecture

Civil Engineering Department

Brgy. Bajumpandan, Dumaguete City

ENS 243 – TECHNOPRENEURSHIP

MW (1:00 p.m. – 2:00 p.m.)

RAISING CAPITAL

Reporters
Abdul, Shaleeca M.
Ebon, Recarl R.
Eudin, John Gabriel
Evangelista, Marwel P.
Carreon, Leif Dominic B.
Tubat, James Aeron A.
Venida, Ira Gaines A.

Engr. Leizl Honculada

Instructor

March 2024
 RAISING CAPITAL

Specific Objectives

At the end of the discussion, you should be able to:

1. define and provide a general idea about raising capital;

2. distinguish between the different types of capital raising;
3. identify various methods and ways to raise capital; and
4. know the significance of raising capital especially in the aspect of business; and

Definition of Terms

 Capital — The total amount invested in the business by the owner. It is a connecting
string that makes the realization of a particular business possible.
 Capital Raising — refers to a process through which a company raises funds from
external sources to achieve its strategic goals
 Debt — is something one party owes another, typically money. Companies and
individuals often take on debt to make large purchases they could not afford without it.
Debt can be secured or unsecured, with a fixed end date or revolving.
 Equity — typically referred to as shareholders’ equity (or owners’ equity for privately
held companies), represents the amount of money that would be returned to a company’s
shareholders if all of the assets were liquidated and all of the company’s debt was paid
off in the case of liquidation.
 Business Plan — is a strategic document that outlines a company’s goals, strategies for
achieving them, and the time frame for their achievement. It covers aspects like market
analysis, financial projections, and organizational structure, serving as a roadmap for
business growth and a tool to secure funding.

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INTRODUCTION
In today’s dynamic business landscape, raising capital stands as a pivotal milestone for
startups, entrepreneurs, and established companies alike. Whether launching a new venture,
expanding operations, or fueling innovation, the ability to secure funding is essential for growth
and sustainability. Delving into the strategies, challenges, and opportunities inherent in the quest
for financial backing would be the main subject matter and focal point of discussion of this
report.

From traditional methods like bank loans and venture capital to innovative approaches
such as crowdfunding and ICOs, this paper will navigate the diverse avenues available to
businesses seeking to unlock their potential through strategic capital acquisition. Furthermore,
this report will also try to unravel the intricacies of fundraising, and will attempt to empower you
with the knowledge and insights needed to navigate the dynamic realm of capital procurement
successfully.

DISCUSSION
What is Capital Raising?
The term “Capital” first and foremost, is typically referred to as cash or liquid assets
being held or obtained for expenditures. In a broader sense, the term may be expanded to include
all of a company’s assets that have monetary value, such as its equipment, real estate, and
inventory. It is the money used to build, run, or grow a business. It can also refer to the net
worth (or book value) of a business. Capital is also considered as the money used by a business
either to meet upcoming expenses, or to invest in new assets and projects.

Moreover, Capital Raising definition

refers to a process through which a company
raises funds from external sources to achieve
its strategic goals, such as investment in its
own business development, or investment in
other assets, for example, M&A, joint
ventures, and strategic partnerships.

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Types of Capital Raising

In broad terms, there are 3 ways how companies can raise capital: debt, equity, or a
combination of the two, otherwise known as hybrids.

1. Debt Raising
Debt raising involves raising funds
through loans provided by third parties. The
lenders of the debt have traditionally been banks
and public debt markets (i.e. the bond markets)
but now include a host of financial institutions
and increasingly private equity funds. In its
simplest form, debt raising involves paying the lender back its principal and an agreed amount of
interest over the duration of the loan.

The size of the debt market (in 2021, the global debt market was valued at $303 trillion)
means that anyone debt raising can avail of multiple forms of debt. Lenders can include a range
of terms and conditions on their loan that protect them on the downside in the event that your
company cannot (or will not) repay the money.

In broad terms, there are four forms of debt that companies can avail of:

 Secured debt: Where collateral is used to secure the loan, thus enabling the company to
avail of lower interest rates (as the risk is lower for the lender);
 Unsecured debt: This form of debt includes no borrower collateral, so the interest rate
depends on the company’s credit history;
 Tax-exempt corporate debt: Some debt may be eligible for tax exemption. For example,
projects related to sustainability;
 Convertible debt: Usually considered a hybrid (i.e. a mixture of debt and equity),
whereby the debt can be converted into equity if the borrower prefers.

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 Which type of debt a company raises depends on a number of different factors –
primarily the condition of their financial statements (and in particular, the amount of debt
outstanding on the balance sheet), their credit (rating) history, quality of the collateral, and
borrowers’ and lenders’ own appetite for risk. At most points of an economic cycle, debt is
possible for a company to raise, but the cost of interest is not always attractive.

Pros & Cons of Debt Raising

Pros:
 Relatively fast access to cash for companies that require it;
 In low interest rate environments, debt offers a cheap way to access liquidity;
 Debt repayments (in interest) can be forecasted accurately for budgeting purposes;
 The interest paid is tax deductible

Cons:
 Generally, raising debt reduces a company’s credit rating;
 There mere availability of debt may induce managers to raise it when it is not required;
 The money has to be repaid, even if the business isn’t performing well;
 Debt on a balance sheet reduces management’s strategic options.

2. Equity Raising
Equity raising occurs when a company seeks to raise
funds through the sale of its equity – i.e. a share in the
ownership of the company. The equity investors can
generally be anyone that possesses the cash required and is
willing to meet the company’s owners on its valuation. A
company that overvalues its equity risks alienating most
investors, who will fear not seeing an adequate return on
their investment.

Most companies with positive outlooks (i.e. their

equity is attractive to investors) can avail of equity funding. Like debt raising, certain equity
raising agreements can have different conditions attached, and when this happens, it is usually
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referred to as ‘preferred equity.’ The stock market is the largest and most well-known method of
equity raising, where publicly listed companies sell their equity to raise funds and maintain
liquidity.

Equity Raising Examples

There are several kinds of raising equity, with the big differentiator between them being
the stage of a company’s evolution to which it applies to. In broad terms, the different types of
equity raising – in chronological order, from early companies to mature companies, are:

 Crowdfunding – is a way of raising money to finance projects and businesses. It enables

fundraisers to collect money from a large number of people via online platforms.
Crowdfunding is most often used by startup companies or growing businesses as a way of
accessing alternative funds.
 Seed financing – Seed financing (also known as seed capital, seed money, or seed
funding) is the earliest stage of the capital-raising process of a startup. Seed financing is a
type of equity-based financing. In other words, investors commit their capital in exchange
for an equity interest in a company.
 Angel financing – Angel financing refers to an investment model wherein “business
angels” – essentially, high net worth individuals – provide financial backing for small
businesses in exchange for equity in the company. Angel financing can be a one-time
investment, or it can refer to ongoing support.
 Venture Capital – Venture capital (VC) is generally used to support startups and other
businesses with the potential for substantial and rapid growth. VC firms raise money
from limited partners (LPs) to invest in promising startups or even larger venture funds.
 Private Equity – Private equity (PE) refers to capital investments made in companies that
are not publicly traded. Most PE firms are open to accredited investors or high-net-worth
individuals, and successful PE managers can earn over a million dollars a year.
 Public Capital Markets – Most investors use public markets to invest in companies,
which buys them a partial interest in a company. It is also where many companies go
when they want to raise new capital to fund their business operations.

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Pros and Cons of Equity Raising
Pros:
 Access to the management advice of seasoned equity investors;
 No requirement for regular interest repayments(as with debt raising);
 Possibility for company management to set the company valuation;
 Technically, a lower risk solution than debt raising.

Cons:
 Company management is giving up (some) controlling the business;
 The equity may come with some provisions on consulting the investors on big decisions;
 The presence of external investors may lead to friction within the company;
 The upside potential of the company now has to be shared with outsiders.

3. Hybrids of debt and equity

A hybrid of debt and equity gives the advantages(and disadvantages) of debt and equity
raising and tends to be seen as a compromise between the two. Depending on how the hybrid
capital raising agreement is written up, it could benefit either the company or the owner
moreover the course of the debt. In essence, if the company thrives and the debt is convertible to
equity, investors win. Otherwise, the benefits tend to be derived by the company.

Pros and Cons of Hybrids of Debt and Equity

Pros:
 More flexible arrangements are possible for the company and investors;
 Can provide both sides of the transaction with a lower risk proposition;
 May give companies access to a broader range of investors;
 May enable investors to diversify across a broader number of companies by combining
fixed income (debt) with equity investments.

Cons:
 Hybrid capital raising tends to be more complex than either debt or equity raising;
 Tends to favor investors at the expense of companies.

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 How to Raise Capital for Your Business
Here is a step-by-step approach to
raising capital for your business:
 Step 1: Clean up your financials
Most lenders will focus on two
things: The executive summary of your
business plan (see next bullet point) and
your financial statements. Ensure both are as good as they can be. That means paying off credit
card debt so that it’s not on the balance sheet, becoming more aggressive in the short term about
credit terms so that your receivables are lower, and maybe even cutting back on some operating
expenses.

 Step 2: Write a business plan

Whether the funds are coming from a financial institution, a private equity-style fund,
independent investors, or even the SBA, it pays to have a strong business plan that shows exactly
why you need to raise capital, and why the lender can be sure that they’ll receive the principal
with interest within an agreed timeframe.

 Step 3: Emphasize the sources and uses

As part of the business plan, know exactly where the funds will be used. If you’re
acquiring a new piece of equipment, make it explicit. If you’re hiring for sales and marketing,
show how the funds will be used (what percentage on social media, what percentage on a sales
team, etc.). Show as much detail as possible – this also serves to give you insight into your own
business.

 Step 4: Make a long-list

When looking to raise capital, it’s useful to keep in mind that you’re not the only one.
Everybody wants more money. People who are providing it are typically overrun with requests
for capital. Most businesses will be trying to convince them that theirs is better than all the
others, so don’t be surprised when the first ten companies don’t jump. The capital raising process
can take a significant amount of time. Buckle up.

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The process of raising funds is easier said than done, however.

Who Does the Capital Come From?

Traditionally, banks were the go-to destination for
companies looking for debt but the universal need to raise
capital has led to a plethora of options for companies of all sizes.
Most of the following outlets for raising capital will cater to both
debt and equity raising, with specifics depending on the
institution in question.
Banks
Banks remain one of the most common sources of capital for companies, particularly
when a company has a good track record with the bank. Equity raises can also occur with banks
but tend to be far less common.

Private debt
Private debt – that is, debt-funded by non-public financial institutions – has seen huge
growth over the past decade, with the caveat for businesses that interest rates on loans usually
begin at the 6-7% mark.

Private equity
With private equity companies sitting on an estimated $2 trillion of ‘’dry powder’ (funds
waiting to be used), private equity currently offers an excellent way for companies of all sizes to
raise equity capital.

Angel Investors/Seed Investors/Venture Capital

These funds usually seek an equity share of a small, fast-growing business and can build
in a debt component. A major advantage here is the ability to tap into their network and
expertise. Learn more about how venture capital work here.

Public markets

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 The main reason that companies go public is to raise equity capital: Selling off slices of
the company on a publicly traded index to fund the company’s expansion.

Small Business Association (SBA)

SBA loans are a hugely popular means for small companies to access significant amounts
of capital at very attractive rates, the only drawback being the time it can take to access funds.

Ways of Capital Raise for Different Business Sizes

Depending on the size of your business, there are different ways you can raise capital.
The process of raising capital for a private company will for example be different than for a
public company.

Following are typical routes of capital raising for different business sizes:
Startups
 Friends and family
 Public or private business incubators
 Seed investors
 VC funds

Small and medium-sized enterprises (SMEs)

 Private equity investors (those aimed at SMEs)
 Family offices

Large Companies
 Initial Public Offering (IPO)
 Private equity investors (those aimed at larger companies)
 Family offices
 Wealth funds and asset managers

Why do Companies Raise Capital?

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 Growth is, for all intent and purposes, the major reason why companies raise capital.
Whether it’s a younger firm looking to raise capital with a venture capital firm to hire more
programmers, a mature industrial firm looking to acquire an industry rival, or a distressed
company looking to restructure in some manner, the underlying motive in almost all cases for
raising capital is growth.

Growth being the implicit motive, the explicit motives for raising capital are as follows:

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Assessment
1. It is the total amount invested in the business by the owner.
2. It refers to a process through which a company raises funds from external sources to achieve
its strategic goals.
3. What are the three types or ways of raising capital?
4. It remains as one of the most common sources of capital for companies.
5. It is the major reason why companies raise capital.
6. These funds usually seek an equity share of a small, fast-growing business and can build in a
debt component.
7. It occurs when a company seeks to raise funds through the sale of its equity – i.e. a share in the
ownership of the company.
8. This involves raising funds through loans provided by third parties.
9. It is a way of raising money to finance projects and businesses. It enables fundraisers to collect
money from a large number of people via online platforms.
10. It refers to capital investments made in companies that are not publicly traded.
11-15. Why is the concept of raising capital crucial in the aspect of conducting business? (Essay)

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Summary
It is undoubtedly crucial for any business (startups or large businesses) to understand the
importance of raising their capital. Raising capital refers to the process of acquiring funds to
finance a business or project. The financial stability and overall life span of a business is greatly
dependent on the aforesaid concept. It involves various methods such as seeking investments
from venture capitalists, angel investors, or through crowdfunding platforms. Companies may
also opt for debt financing through loans or issuing bonds. The choice of capital raising method
depends on factors like the stage of the business, its financial needs, and risk tolerance. Effective
capital raising strategies require thorough planning, clear communication of the business’s value
proposition, and compliance with regulatory requirements.

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