RAISING

CAPITAL
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Raising Capital is when

an investor or a lender
gives a business funds to
assist with starting,
growing, and managing
day-to-day operations.
Why Raise Capital?
● To start a new business
● To grow an existing business
● To acquire another business
● To cover operating expenses
● To invest in research and development
● To repay debt
There are two main types of
capital:

Debt capital and Equity capital

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Debt Capital Equity Capital

● Borrowed money that must be ● Money raised by selling shares

repaid with interest of ownership in a company
● Less risky for businesses
● More risky for businesses
● Can be more expensive
● Examples: bank loans, lines of ● Can be cheaper
credit, bonds ● Examples: angel investors,
venture capitalists, crowdfunding
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How to Raise Capital

1. Develop a solid business plan
2. Network with potential investors
3. Be prepared to answer their questions
4. There are a number of ways to raise capital, including:
• Asking friends and family for loans
• Crowdfunding
• Taking out a loan from a bank or online lender
• Finding an angel investor
• Pitching to a venture capital firm
 Funding Your
Startup:
Venture Capital vs. Angel
Investors
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Venture capital (VC) How Venture Capital Works

• The more money you get from a venture

firms invest in established
capital firm, the more ownership they will
companies that they believe have get.
long-term growth potential. As a
startup, you likely won’t be able to • Venture capital firms are better suited for
attract the interest of a venture larger businesses with long-term potential
than for smaller startups.
capital group until you’ve been able
to demonstrate that you have a • They typically take a hands-off approach
viable business that can make an to management, but will expect a seat on
investor a lot of money. the board of directors.
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ANGEL INVESTOR Who Can Be an Angel

Investor?
(also referred to as a seed
• An angel investor can be anyone
investor, business angel, with the money to invest in your
private investor, or informal business.
• They can be someone in your
investor) is somebody who has
social circle, such as a family
the money, time, and member or friend.
knowledge to invest in your • They can also be someone you
meet through networking channels.
business. • The only requirement is that they
be accredited by the SEC.
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What Do Angel Investors Do? Bottom Line

• Angel investors provide both funding If you are just starting out, focus on
and guidance. finding angel investors. They can
• They often enjoy being involved in the
provide smaller amounts of funding
growth of a business and are willing to
share their knowledge and experience.
and more guidance. If your business
• You can expect to give up some is well-established and has high
decision-making power to an angel growth potential, a VC firm may be a
investor. good option. They can provide the
• However, this can be a positive thing if
funding you need to scale your
you find the right investor.
business to the next level.
 Key Steps on how to find funding for your
business
• Prepare yourself: assess your team, industry,
competitors, market, products, financials and how much
money you need.
• Research different investors: founders, family, friends,
venture capitalists, angel investors, etc.
• Get your pitch deck ready: 10-15 slides on your
company, team, competition, target market, milestones,
plans and funding requirements.
• Network and find potential investors: attend events,
make connections and be helpful to others. Be prepared
for rejection.
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Angel Investors:
Finding Capital for  Advantages:
Startups • Faster investment
• Easier due diligence
● Raising capital is a CEO's most
• Less interference
important and time-consuming job. It
• Less demanding terms
requires a
 Disadvantages:
well-practiced and convincing pitch. • Smaller investment amounts
• Reliant on personal networks
• Doesn't prepare for institutional investors
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Venture Capitalists Finding Investors:

(VCs):
While pitching on a national stage isn't for
 Advantages: everyone, technology can help you find
• Significant resources and suitable investors:
experience ● Gust
• Help with targeted exits and ● Crunchbase Pro
avoiding mistakes ● LinkedIn
 Disadvantages: ● Pitch Investors Live App
• Aggressive terms ● Micro ventures
• Value-add may not fit your ● We Funder
 Capital Raising
Methods in the Current
Environment
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Advantages:
1.Underwritten Offering • Trusted and well-understood method
• Low discount to trading price
Public company sells stock through • Investor road show increases public
awareness
an investment bank (underwriter) • Disadvantages:
that guarantees to sell a certain • Market overhang can depress stock price
number of shares at a set price. • Time-consuming SEC review process for
some companies
• Extensive investor road show required for
small and middle market companies
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Advantages:
2. At-The-Market (ATM) • Quick and easy to initiate
• Lower overall cost than underwritten offerings
Offerings • Sales can be extended over a long period
• Issuer has control over timing, number of shares,
and minimum price
Public company sells its stock Disadvantages:
• Requires periodic due diligence from broker-dealer
directly into the market at • Trading price often depressed when offering is
prevailing prices over announced
time. • Signals to the market that the stock is fairly priced
• Limitations on number of shares sold per day
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Advantages:
3.PIPEs (Private • Flexible structure (debt, equity, or
combination
Investment in Publicly • Standstill provisions may prevent large
Traded Entity) holders from increasing ownership
• Faster than underwritten offerings
Private sale of stock to a small Disadvantages:
• Discounted sale price increases dilution
number of institutional investors, • Illiquid investment demands higher
with registration rights for resale. discounts
• Complex negotiations due to custom terms
and leverage structures
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Advantages:
4. Registered Direct Offerings • Quicker and more discreet issuance than PIPE
(RDOs) • Issuers can test the market without attracting
publicity
• Existing registration statement avoids market
Similar to PIPE but registered with overhang and secures better price
• Securities are immediately transferable
SEC beforehand, allowing targeted Disadvantages:
marketing and faster execution. • Not marketed to retail investors, limiting
distribution
• Discounted price (4-8% off trading price)
• May require warrants to entice investors
• Only available to Form S-3 eligible issuers
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Advantages:
• Prevents dilution of existing share value
5. Rights Offerings • Rights may be transferable and traded
• Backstop agreements can ensure needed capital is
raised
Existing shareholders are given • No shareholder approval required, even for large
the right to purchase new offerings
Disadvantages:
shares at a discount • Discounted offering price
• Creates potential for more concentrated investor
during a specified period. positions
• Uncertain total funding amount unless a backstop
is included
Equity Line
Facilities
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Equity Line
Facilities
For companies that are
having trouble obtaining
traditional sources of
capital, an equity line
facility may present a
viable alternative.
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Advantages Disadvantages
■ The cost of capital is low relative to other ■ SEC review may delay the registration
alternatives. statement.
■ The company has control over the timing
and amounts of draws. ■ The capital is raised over time rather than
■ The process is less time consuming. in one lump sum.
■ The issuer sets a floor price for every ■ The total funding amount is uncertain.
draw. ■ Warrants and commitment shares can be
■ Commitments can extend for up to three dilutive.
years.
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Businesses Raise Financial Four main ways to raise

Capital capital:
Firms often make decisions that
involve spending money in the 1. Early-stage investors
present and expecting to earn profits 2. Reinvesting profits
in the future
3. Borrowing from banks or
issuing bonds
4. Selling stock
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Early Stage Financial Capital Four main ways to raise

capital:
Firms that are just beginning
often have an idea or a
prototype for a product or 1. Early-stage investors
service to sell, but few 2. Reinvesting profits
customers, or even no 3. Borrowing from banks or
customers at all, and thus are issuing bonds
not earning profits. 4. Selling stock
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Venture capital firms Profits as a Source of

Financial Capital
Make financial investments
in new companies that are If firms are earning profits (their
still relatively small in size, revenues are greater than costs),
but that have potential to they can choose to reinvest some of
these profits in equipment,
grow substantially.
structures, and research and
development.
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Borrowing: Banks and Bonds

Firms have two main
When a firm has a record of at
least earning significant methods of borrowing:
revenues, and better still of
earning profits, the firm can 1. Banks
make a credible promise to pay
interest, and so it becomes
2. Bonds.
possible for the firm to borrow
money.
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Bank Bond
for a firm works in much the is a financial contract: a borrower
same way as a loan for an agrees to repay the amount that was
individual who is buying a car borrowed and also a rate of interest
or a house. over a period of time in the future.