is business plan the key to raising capital

The Essential Guide to Capital Raising

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

In many respects, there has never been a better time for companies to raise capital.

Interest rates are hovering close to zero for a longer period than at any stage of history, the government has just made a historic cash injection into the economy, and there is an ever-growing number of funding sources to choose from.

DealRoom works with hundreds of companies both seeking and providing capital on an ongoing basis, providing them with a virtual deal room that is designed to smoothen the process of raising funds, whichever side of the transaction they’re on.

In this article, we share some of the insights we’ve gathered from helping companies through their capital raise process.

What is Capital Raising?

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.

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.

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.

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 and Cons of Debt Raising

• 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
• 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.

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 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.

Pros and Cons of Equity Raising

• 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.
• 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.

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
• Seed financing
• Angel financing
• Venture Capital
• Private Equity
• Public Capital Markets

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

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

How to Raise Capital for Your Business

Whether a company is raising debt or equity capital, it essentially faces a sell-side investor equation similar to that faced by owners looking to divest their companies (ultimately, what is equity raising aside from selling a part of a business).

On this basis, company managers face many of the same challenges as they would in M&A: providing investors with the right documentation, valuing the company correctly, and getting their house in order.

For this same reason, managers at these companies would be well advised to use data room due diligence software like DealRoom or an alternative.

Not only does DealRoom enable companies to efficiently organize their capital raising process, but it can also show where weaknesses in the company’s value proposition might exist before making the initial approach to investors for their debt or equity raise.

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.

"From data storage and sharing to investor communication and progress reports, DealRoom helped readily execute Pax8’s entire investor management process." -- Jefferson Keith SVP, Corporate Development at Pax8

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

Interested in learning more about the capital raising process? Utilize the Capital Raise Playbook tailored to outline and walk you through the process of raising capital for your specific business.

Why do Companies Raise Capital?

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:

Read also: Venture Capital Deal Structures: Complete Guide

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 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.

Listen to private equity podcasts to improve your understanding of how private equity firms operate.

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

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:

• Friends and family
• Public or private business incubators
• Seed investors

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)
• Wealth funds and asset managers

How To Get Ready for the Capital Raising Process?

The capital raising process can be complex and overwhelming, especially if it's your first time.

To raise capital, at the very least, a company will require a business plan or pitch deck .

The aim of these documents is to show investors that the cash flows generated by the company are sustainable enough to ensure that it will get its money back with interest (in the case of a debt raise) or achieve what they deem to be an attractive return on investment (in the case of an equity raise).

Offering Memorandum

Offering memorandums are used by companies seeking to raise equity capital. It has to comply with securities laws designated by the SEC.

This formal document provides registered investors with a detailed overview of the company’s financials and operations.

This process is called venture capital due diligence .

This document also invariably features a subscription agreement that defines the terms of the investor’s participation in the company’s equity offering.

To streamline this otherwise complex process, we put together a Capital Raising Playbook that helps you tick all the boxes. Grab your copy now!

There have never been as many options for companies seeking to raise debt or equity capital.

At the time of writing, private equity funds hold close to $2 trillion in ‘dry power’ (capital ready to be distributed to companies either through debt or direct equity investments). But the fact that they’re not distributing it says something about companies - primarily, that they’re not adequately prepared in these investors’ eyes.

Talk to DealRoom today about the essential role that our lifecycle management tool plays in enabling companies to take this leap.

Get your M&A process in order. Use DealRoom as a single source of truth and align your team.

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Raising Capital: The Best Ways to Raise Money for a Business

• 11 min read

Jaclyn Robinson, Senior Manager of Content Marketing at Crunchbase

Capital is the lifeblood of business. Without capital, you cannot continue to fund your daily operations. Raising money for a business is just the first step to get it off the ground. Beyond that, you’ll need to raise funds to keep it moving.

According to the U.S. Bureau of Labor Statistics , lack of capital is one of the leading reasons businesses fail to survive, with just 25 percent of businesses lasting past 15 years.

Raising capital for your new venture is the initial order of business, so let’s dive into what it means and how to do it.

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What is capital?

Capital is technically anything that can be quantified with a dollar figure within a business setup. A factory’s machinery counts as capital. Intellectual property could also be classified as a type of capital.

However, most people use the capital for business in terms of the money they have in the bank. Financial capital is often the difference between success and failure, so let’s talk about how to go about raising funds.

Types of capital for business

Raising capital begins with understanding your options for injecting that vital liquidity into your business.

Capital raising can come from a variety of sources. The right option for your company largely depends on your current circumstances and weighing the pros and cons of each option. Here are a few different types of capital.

Debt capital

Debt capital is the most common way startups get the money together to launch their businesses. The concept of debt capital is that you borrow money to raise the necessary funds.

Traditional bank loans, credit cards, online lenders and Federal loan programs are just some of the ways you can start raising capital via debt.

The average small business needs $10,000 to get started, but it depends on your industry and how ambitious you happen to be. Existing businesses will need to ensure they have a positive credit history to secure loans. In contrast, new business owners may use their personal credit scores to secure a loan.

The way debt capital is used depends on the size of the business. Although a small business may use debt capital by taking out a loan, corporations often choose to issue bonds, especially if national interest rates are low.

If looking at capital for business by taking out debt, watch your debt-to-income ratio to ensure you aren’t drowning in debt.

• It doesn’t dilute your ownership
• No lender claims on future profits
• Interest is tax-deductible
• Potentially higher interest rates
• May make it difficult to secure third-party equity investment

Equity capital

Equity capital comes in two forms: private and public equity capital.

Private and public equity capital comes in the form of shares in the company. The distinction is that a publicly traded company can be bought on the open market by anyone, whereas private equity is strictly traded among a closed group of investors.

When someone purchases a share in your company, they’re providing capital in the form of ownership. How much each share is worth depends on how many total shares you’ve got.

For example, if you have 100 shares and sell one share, each share is worth 1 percent of your company. Stock splits also allow you to create more shares to sell while diluting everyone’s ownership in the company.

It’s how small and growing companies can make a big splash.

• No repayment requirements
• Bring in partners with expertise and talent
• You no longer own 100 percent of your company
• Time and effort required to secure equity investors

Net earnings capital

The final way to raise the funds is by increasing your net earnings. In other words, rather than giving away part of your company or taking on debt, you’re working to improve your output and profitability.

Net earnings capital is harder to come by because it’s typically powered by raising money in other ways to up your capacity and increase your reach.

However, if you’ve already got money from investors and are looking to expand even further, net earnings capital is a great way to drive your business forward.

• No lost ownership
• Powered by genuine company growth
• Difficult to come by
• Higher taxes

How to raise money for a business

How do you go about raising capital if you are going into business for yourself? A complete understanding of capital raising is crucial to getting the funding needed to launch your new venture.

Determine your capital need

Before you can determine capital need, you’ll need to develop a long-term business plan and your company’s strategic goals. If you’re already operating, you have a leg up in understanding what it costs to run your business. If you’re just starting out, some of the expenses you need to take into account include:

• Office space
• Hiring new employees
• Purchasing technology/other hardware and software tools
• Marketing budget

You must strike a balance between having enough capital and not taking out too much capital. A lack of capital could indicate a broader weakness in your plan and the wider market. On the other hand, too much capital and you may find yourself giving away more equity than you intended or facing high monthly debt repayments.

Choose a funding type

You’ll almost certainly be choosing between equity capital and debt capital. When approaching venture capitalists, you will most likely need to give away a portion of the company, as well as a degree of control over business decisions.

With non-institutional investors, you’ll be taking on debt. Match up the potential debt repayments with your projected monthly revenue.

What works for one business may not work for another, so make sure you carefully think through your funding type.

Business valuation

The fundraising process begins with determining a rough value for the company. The entrepreneur needs to estimate how much their company is worth based on its potential. Equally, your assumptions need to be rational.

When seeking private equity or venture capital fundraising, you’ll need a pre-money and post-money valuation of the business. These estimates will determine how much of your company you’ll be giving away to investors.

Your post-money business valuation is the pre-money valuation plus any new money. Investors will ask probing questions regarding how you came to your pre-money valuation, so make sure you can show your rationale.

Connect with investors

It’s time to begin pitching your idea to investors. Keep this as condensed as possible because the more time you spend meeting with investors, the less time you have to manage the day-to-day operations of your business.

The easiest way to seek out investors is to leverage your professional network. Getting introductions in this way can be a launchpad for connecting with other interested parties.

The investor will present you with a term sheet if you receive an offer. This short document covers the primary points of the deal, such as how much is being invested, the amount of equity given in return, and any other high-level conditions.

You’ll have the opportunity to negotiate, but negotiation becomes significantly harder the moment you sign the term sheet.

Following funding rounds

Most successful companies don’t have just a single round of funding. A single round of funding may just be the jumping-off point for approaching more prominent investors.

Before embarking on your subsequent funding rounds, your pre-money value should be higher than the post-money value of the last round of funding. Why does this matter? New investors want to see that you’ve put your capital to good use and that this is a growing business.

Throughout each round of funding, you should be looking to fund anywhere from 12 to 18 months of operations before moving on to the next round.

Later rounds are traditionally more challenging to secure funding because investors who buy-in at later stages want to see proven business growth and momentum.

What’s the key to securing investment?

What investors want is simple: a positive (ideally outsized) return on their investment. Some may expect this return quickly, while others may be willing to stick it out for long-term growth.

Focus on the hard numbers and demonstrate that you’ve carried out meticulous research into your target market and the competition. Give accurate projections without exaggerating for effect. Experienced investors are well aware of business valuations, and being too ambitious could curtail your chance to raise money.

Condense your pitch and focus on the hard numbers that demonstrate to investors that they’re highly likely to see a positive return on their money.

9 things to know about raising capital

Figuring out how to raise funds can be intimidating the first time. There’s an art and a science to successful fundraising and a little bit of luck.

Follow these tips to increase your chances of securing the funding your new venture requires.

1. Get your material ready for investors

Focus not on what appeals to you but on what appeals to investors. All venture capitalists have a way they like to see businesses presented. Generally, your documentation should be well-structured and in an easy-to-read format.

Never tell an investor to visit your website to check you out. Investors are busy people and don’t have time to look you up themselves.

Give them everything they need right in front of them during your initial round of fundraising.

2. Create a strong business plan

The most important part of your pitch is your business plan. It should be a complete roadmap to success and a blueprint for how your organization will make money.

Investors don’t just want to see the financial figures. They want to know how you intend on operating your business, your marketing studies, as well as risk management, investment offering, and even an exit strategy.

Think like a chess player. Show that you’ve thought four moves ahead and planned for every eventuality.

3. Be clear on your competitive edge

What makes your business special?

No equity investor is interested in investing in one of a thousand other businesses. They’re searching for the movers and shakers that are about to change the game. If you’re just starting an accountancy business, no venture capitalist will show any interest because it’s nothing special.

Equity capital is different because investors want a piece of the next big revolution within your industry.

4. Concentrate on investors with niche experience

Some investors will indeed have fingers in many industry pies, but investors often come with more than money. Experienced business owners provide expertise to younger entrepreneurs. Talent and expertise come with the package because you’re not just getting capital. You’re getting a new owner.

Look for investors with experience within your niche. If you’re also providing them with influence over business decisions, you need the confidence that they know what they’re doing.

You should be looking to bring on investors only in a nonexecutive role if they don’t.

5. Talk about your management team

Remember, investors don’t know who you are. They don’t know if you’re a great entrepreneur in the making or a kid with an inheritance from mommy and daddy. You need to show that you’ve got the chops to make it.

Venture capitalists pay massive attention to the management team running the company. They want to know about their experience and personalities. There’s a reason many investors admit they give money to the entrepreneur rather than the business idea itself.

Don’t underestimate the value of your human capital because even the best business idea in the world won’t get far if the management team doesn’t meet the appropriate standard.

6. Know what the investor brings to the table

Inexperienced entrepreneurs tend to make the mistake of assuming that an investor is just someone who’s going to give them money. Investors form a valuable part of where your business can go.

Some investors can help you scale by having connections in emerging markets. If you’re looking to expand your business into Europe, India or China in the future, it makes sense to look for an investor with these types of connections. Investors may also sit on your board, playing a huge part in critical business decisions and the direction of your company, so ensure you’re aligned with the investor’s long-term vision for your company.

As already mentioned, an investor with technical expertise in your industry can also be helpful. Not every investor is hands-off, so make sure you question what they can bring to your emerging company.

7. Get your valuation independently certified

Where does one start when it comes to certifying a business? Unless you’ve had specific training or experience, the chances are you don’t know how to value your business.

Some entrepreneurs will pluck a figure out of thin air and run with it using a convoluted explanation. That’s not good enough for raising capital. Any investor with a degree of experience will see right through it.

Show your professionalism and credibility by enlisting the help of a professional valuator who can comb through your business plan and provide a realistic valuation.

Do this as early as possible so you know how much capital to ask for and which investors to approach.

8. Pitch with two essential documents

There are two critical documents you need when securing funding for your company. They are:

• Investor Pitch Deck : These presentations are roughly 10 pages/slides in length. It’s your first impression, so make it count. Investors scan through your pitch deck and decide whether they want to look at your formal business plan.
• Business Plan : If an investor wants to see your business plan, they’ll ask for it. This document is where you get into the nuts and bolts of your company.

Maintain a copy of these documents at all times when looking for capital. If investors like what they see in these two documents, they will ask for a formal in-person meeting.

9. Be persistent

Remember that many investors won’t reply to you at all. It doesn’t mean there’s anything wrong with your pitch, venture capitalists are busy people and don’t have the time to reply to everybody.

As long as you’ve meticulously combed through your documentation, you’ll find the right investor match sooner or later. What’s important is patience and maintaining focus on the critical operations of your business.

Debt and equity capital are the two primary ways you’re going to get a significant injection of cash into your business. If you’re strategizing and researching how to find investors for a startup , be sure you can clearly articulate your business plan and support that plan with relevant market research before you reach out to investors.

Crunchbase enables you to conduct market research, find and connect with the right decision-makers all in one platform.

• Originally published February 26, 2022

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How to Raise Capital for Your Small Business (10 Effective Ways)

• August 13, 2023
• by Epifania

If you’re running a small business or nurturing a fresh startup, you’re likely all too familiar with the trials and tribulations of raising capital. It’s not unlike scaling a mountain: daunting at first glance, demanding in execution, but spectacularly rewarding when you finally reach the summit. As you’re scrambling for funds, the seemingly monumental task of raising capital can sometimes feel like the ‘Everest’ of entrepreneurship.

Small businesses are the engine room of economies worldwide. They’re nimble, innovative, and driven by ambitious dreamers. However, as any seasoned entrepreneur will tell you, dreams alone won’t keep the lights on or the production line humming. That’s where capital comes into play.

Capital is the lifeblood of any business. It’s the fuel that keeps the entrepreneurial engine purring, the essential resource that turns the gears of commerce. In the world of small business, securing enough capital can mean the difference between steady growth and being stuck in the startup blocks. It’s the crux of your business, allowing you to purchase inventory, invest in equipment, pay staff, fund marketing efforts, and cover the multitude of other expenses that inevitably crop up.

Yet, the paradox is clear: while capital is crucial for small businesses to thrive, it’s often the most challenging thing to secure. Traditional lenders can be hesitant to invest in new, untested ventures, and the complexities of navigating venture capital can be mind-boggling. Moreover, the rise of the digital era has brought a whole new set of opportunities – and obstacles – for small businesses seeking capital.

In short, raising capital is a multifaceted challenge, but don’t let the task deter you. It may be one of the most strenuous stages of running a small business, but remember – every successful business that exists today once faced the same uphill climb. In this blog post, we’re going to share the ropes, the routes, and the crucial gear you’ll need to scale your own capital-raising mountain. Let’s embark on this ascent together!

Table of Contents

Self-Funding: The Art of Bootstrapping

Considered the entrepreneurial equivalent of learning to swim by jumping in the deep end, self-funding, also known as ‘bootstrapping’, is the first stop on our capital-raising journey. Bootstrapping is where it all begins for many business owners, who dip into their savings or reinvest profits to fund their ventures.

Self-funding presents an attractive alternative to traditional funding sources, primarily because it allows you to maintain control. You get to call the shots, make decisions, and steer your ship without external interference or pressure to provide immediate returns to investors.

However, the journey of bootstrapping is not without its bumps. The financial risks rest squarely on your shoulders, and your personal savings can quickly evaporate if things don’t go as planned.

5 Pros of Self-Funding a Business

• Full Control: You retain full ownership and decision-making authority in your business. There’s no need to compromise with investors or lenders.
• No Equity Dilution: You won’t have to share your business’s profits with external investors since there are none.
• No Repayment Obligation: Unlike loans, self-funding doesn’t need to be repaid, freeing you from debt obligations.
• Flexibility: You have more flexibility to pivot your business direction as you’re not bound by investor expectations or loan conditions.
• Privacy: You can maintain privacy about your business operations and financial status since there are no external parties involved.

5 Cons of Self-Funding a Business

• Limited Resources: Your funding is limited to your personal savings or the business’s profits, which may not be enough for larger investments or expansion.
• Personal Financial Risk: You’re putting your own money on the line. If the business fails, you could lose your personal savings.
• Slow Growth: Due to limited funds, growth might be slower compared to businesses with external funding.
• Missed Opportunities: You may miss out on valuable networks, advice, and market credibility that investors can provide.
• Stress: Self-funding can cause significant stress, as the financial success of your business directly impacts your personal financial security.

10 Tips on Saving and Budgeting for Self-Funding

• Detailed Budgeting: Establish a comprehensive and detailed budget. Keep track of every expense, no matter how small, and plan for both fixed and variable costs.
• Separate Personal and Business Finances: Maintain a clear distinction between your personal and business finances to avoid confusion and ensure accountability.
• Prioritize Necessary Costs: Prioritize your spending on necessary costs that will help generate revenue or reduce other costs, such as essential equipment or marketing.
• Reduce Non-Essential Expenses: Eliminate or reduce non-essential expenses. This may include anything from unnecessary subscriptions to expensive office spaces.
• Automate Savings: If possible, set up automated savings transfers to a separate account designated for business expenses. This helps to build your business fund consistently over time.
• Negotiate with Vendors: Try to negotiate better deals with your suppliers and vendors. Every dollar saved is a dollar that can be reinvested into your business.
• Monitor Cash Flow: Keep a close eye on your cash flow to ensure you always have enough funds to cover your expenses and any unexpected costs.
• Invest in Growth: When you do spend, focus on areas that can drive growth, such as marketing or product development.
• Review and Adjust Regularly: Regularly review your budget and make adjustments as necessary. Your business’s needs will change over time, and your budget should reflect this.
• Stay Disciplined: Above all, stay disciplined. It may be tempting to splurge on non-essentials or bypass your budget, but the success of self-funding relies heavily on disciplined financial management.

The key to successful bootstrapping is smart budgeting and saving. Treat your business funds like a frugal squirrel treats its acorns. Prioritize essential expenses, cut back on non-essentials, and always be on the lookout for cost-effective alternatives. Remember, the goal of bootstrapping is not just to stay afloat, but to generate enough profits to reinvest in your business’s growth.

This scrappy, resilient approach to business can be as rewarding as it is challenging. As you venture into the world of self-funding, remember to paddle before you dive. Plan wisely, spend judiciously, and embrace the thrill of steering your own ship.

Friends and Family: A Closer-to-Home Funding Solution

From the historical pages of famous enterprises like Walmart and Amazon to your local bakery, friends and family have often played the part of financial fairy godmothers (and godfathers). Their willingness to support your entrepreneurial dream can provide the critical initial push needed to move your business from concept to reality.

10 Tips for Preserving Relationships When Borrowing from Family and Friends

Approaching those closest to you for funding might feel like tiptoeing through a minefield of potential misunderstandings and damaged relationships. However, there are ways to ease the process while keeping the bond intact. First and foremost, be transparent about your business plans, risks involved, and the likelihood of repayment. Remember, honesty is the best policy when it comes to money and relationships.

• Transparency: Be clear about your business plans, how the funds will be used, and the risks involved. Honesty can help avoid misunderstandings and build trust.
• Formal Agreement: Treat the loan like a business transaction. Create a written agreement detailing the terms of the loan, including the amount, repayment schedule, and interest.
• Open Communication: Maintain open lines of communication throughout the lending period. Regular updates about your business’s progress and financial status can reassure your lenders and keep them involved.
• Professionalism: Always behave professionally. Respect the transaction as a business agreement, not just a personal favor.
• Realistic Expectations: Only borrow what you genuinely believe you can repay and establish a realistic repayment plan. Over-promising and under-delivering can lead to resentment.
• Fair Interest: If you agree on interest, ensure it’s fair. It shouldn’t be so high it strains your finances or so low it devalues their contribution.
• Prioritize Repayment: Make repaying the loan a priority. Even if your business faces financial difficulties, show that you are committed to honoring your agreement.
• Gratitude: Show appreciation for their support. A simple thank you can go a long way in maintaining positive relationships.
• Legal Consultation: Consult with a lawyer to ensure your agreement aligns with local laws and regulations, which can help avoid legal complications down the line.
• Plan for the Worst: Discuss what happens if you can’t repay the loan. It’s tough but necessary to address this scenario upfront to avoid future conflicts.

Necessary paperwork and legalities involved

It’s essential to treat the funding arrangement as you would with a formal lender. Draft an agreement outlining the loan terms, such as the amount, repayment schedule, interest, and what happens if you can’t repay the loan. This document will help avoid any potential misunderstanding and keep everyone on the same page.

When it comes to legalities, consider seeking advice from a lawyer to ensure your agreement abides by applicable laws and regulations. They can help you navigate issues like potential tax implications, or the transition from a loan to equity if the circumstances change.

Keep in mind, borrowing from friends and family is about more than just securing funds; it’s about honoring their faith in you by putting their hard-earned money to good use and striving for the success of your business. Always approach these transactions with the utmost respect, professionalism, and intention to repay. As the adage goes, “borrowed bread is sweet, but it’s better to return the loaf.”

When done correctly, raising capital from friends and family can be an effective, and often more flexible, way to fund your small business, while also strengthening your support network for the challenging entrepreneurial journey ahead.

Crowdfunding: Harnessing the Power of the Crowd

Crowdfunding is a unique and democratic approach to raising funds, enabling entrepreneurs to turn their ideas into reality. It functions as a digital marketplace where creators meet supporters, presenting business proposals or projects with set financial goals. 

The success of a crowdfunding campaign relies on a compelling narrative that resonates with potential backers, who can range from local enthusiasts to global philanthropists. Supporters contribute funds, sometimes receiving rewards such as early access to products or equity in the business. 

Crowdfunding not only generates capital, but it also validates business ideas, creates a supportive community, and builds brand awareness.

However, crowdfunding is not a straightforward process of setting up a page and awaiting fund influx. It demands careful planning, an appealing pitch, rewarding returns, and regular communication with backers. This tool can be a catalyst for small businesses, transforming ideas into profitable realities. 

Multiple types of crowdfunding exist, each offering unique benefits and risks. For instance, donation-based crowdfunding is typically for social causes, while rewards-based crowdfunding allows backers to pre-order a product or service. 

Equity-based crowdfunding gives supporters shares in the company, whereas debt-based (or peer-to-peer lending) involves lending money to businesses for interest and loan amount returns. 

Finally, revenue and royalty-based crowdfunding see backers receiving a percentage of ongoing gross revenues or product/service profits, respectively.

4 Pros of Crowdfunding

• Validation: It’s a great way to test the viability of your business or idea in the market. If people are willing to contribute to your campaign, it’s a good indication that there’s interest and demand for what you’re offering.
• Marketing: A crowdfunding campaign can act as a promotional tool. By spreading the word about your campaign, you’re also creating awareness for your business.
• Customer Base: You can build an early customer base who are emotionally invested in your product or service. These early backers can become your brand ambassadors and provide valuable feedback.
• Funding Without Debt: Unlike loans, you don’t have to repay the money raised through crowdfunding (unless it’s debt-based crowdfunding). This can make it a more attractive option for new businesses.

4 Cons of Crowdfunding

• All-or-Nothing: Many platforms follow an all-or-nothing model where if you don’t meet your funding goal, you won’t receive any funds. This can be risky if you rely heavily on this method for capital.
• Public Exposure: Your business plan and operations are in the public domain, which can be a double-edged sword. While it increases visibility, it also exposes you to potential copycats.
• Time-Consuming: Running a successful crowdfunding campaign can be a full-time job. It requires significant time and effort in marketing, customer service , reward fulfillment, etc.
• Potential Damage to Reputation: If your campaign fails to deliver on promises, it can damage your reputation. It’s essential to keep backers updated about any challenges or changes in plans to maintain trust.

In summary, crowdfunding provides entrepreneurs with an opportunity to validate their ideas, engage with potential customers, and garner necessary funds. It emphasizes the importance of community building, transparency, and effective communication. Proper planning, realistic goal setting, crafting an appealing story, and building a strong marketing strategy are critical to success. Therefore, crowdfunding is not just a fundraising tool; it’s a stepping stone to turning dreams into thriving businesses.

Angel Investors

Imagine if you had a guardian angel who not only believed in your business idea but also had the resources to finance it. In the business world, these guardian angels exist and are known as angel investors.

Angel investors are typically high-net-worth individuals who provide financial backing for small startups or entrepreneurs, often in exchange for ownership equity or convertible debt. They are “angels” in the sense that they are willing to invest in businesses when other potential investors might see too much risk. Angel investors often have a personal interest in the industry or technology behind the business they’re investing in, and they may provide value beyond capital, such as industry connections or mentorship.

Angel investors are different from venture capitalists, who invest other people’s money rather than their own. They often support businesses in early stages, taking more significant risks in the hope of gaining substantial returns when the business succeeds.

6 Steps to Attract Angel Investors

• Build a Strong Business Plan: Angels want to see a comprehensive business plan that includes details about your market, products or services, business model, and strategies for growth.
• Show a Proven Track Record: If you can demonstrate past successes, even on smaller projects, you’ll be more attractive to angel investors.
• Have a Unique Value Proposition: Angel investors are often looking for businesses that offer something new or different. Make sure your business stands out.
• Assemble a Skilled Team: The strength of your team is often as important as the strength of your idea.
• Network: Angel investors often rely on referrals, so attending business events and joining entrepreneurial communities can increase your chances of meeting the right people.
• Show Potential for High Returns: Angel investors are looking for businesses that can grow quickly and deliver a high return on investment.

But, before you engage with an angel investor, it’s essential to understand that they may expect a degree of control in your business, depending on the terms of the investment. This could range from a board seat to decision-making powers in certain aspects of the business. While their experience and advice can be valuable, you must consider whether you’re comfortable with this level of involvement.

In conclusion, angel investors can provide not only the much-needed capital but also valuable expertise and connections to turbocharge your small business. With a compelling business plan, proven track record, unique value proposition, and a strong team, you can attract the right angels who can help your business take flight.

Venture Capitalists

Venture Capitalists (VCs) may sound like explorers on a quest for lucrative business ventures, and that’s not far from the truth. They are financial explorers, searching for the next big business idea to fund and, in turn, to gain a considerable return on their investment.

Venture capitalists are typically firms or funds that invest other people’s money in startups or small businesses that have the potential for high growth. Unlike angel investors who often invest their own money, VCs manage the pooled money of others in a professionally-managed fund. They usually invest in exchange for equity, intending to exit their investment via an IPO or sale of the business further down the line.

Before we delve into how to pitch to and negotiate with venture capitalists, let’s consider the pros and cons of VC funding:

Pros of Venture Capitalism:

• Large Funding Amounts: VCs often invest large sums, allowing businesses to accelerate their growth quickly.
• Expertise and Connections: VCs often bring industry knowledge, experience, and extensive networks to the table.
• Long-term Investment: Venture capitalists generally take a long-term view of their investments, often several years.

Cons of Venture Capitalism:

• Loss of Control: To protect their investment, VCs often demand a degree of control in the business, which may involve decision-making power or board seats.
• High Expectations: VCs invest with the expectation of substantial returns, which means intense pressure for the business to perform.
• Complex and Time-consuming: The process of obtaining VC funding can be complicated and lengthy.

If you think VC funding is the right path for your business, you need to make an effective pitch. This process begins long before you’re in the meeting room. Do your homework, understand the VC’s investment preferences, their portfolio, and how your business fits in.

When you’re pitching, remember that it’s not just about your product or service. Venture capitalists invest in the team as much as the idea. Show them you have the skills, drive, and adaptability to make the business successful. Make sure you have a robust business plan, and be ready to answer detailed questions about your market, competition, financial projections, and growth strategies.

Negotiating with venture capitalists can be complex. It’s not just about the amount of money they’re willing to invest, but also about the value of your company, the percentage of equity they will hold, and the degree of control they will have. Remember that it’s okay to negotiate, but also be realistic about what you can achieve.

Venture Capital funding isn’t for every business, but if you’re looking for significant investment and are willing to share control to supercharge your company’s growth, it could be the perfect match.

Bank Loans: A Traditional Path to Business Financing

When it comes to funding your small business, one of the first options that may spring to mind is a traditional bank loan. Banks have been financing businesses for centuries, and while there are many other types of funding available today, bank loans remain a popular choice. Why? They often offer lower interest rates and can provide substantial capital for various business needs, such as working capital , equipment purchases, or expansion.

Understanding Interest Rates and Repayment Plans

To make the most of a bank loan, it’s essential to understand interest rates and repayment plans. The interest rate is the cost of borrowing money and is typically expressed as a percentage of the loan amount per year. A lower interest rate means you’ll pay less back in addition to your loan amount.

Repayment plans outline how you’ll pay back the loan, including the amount of each payment and the frequency of payments. This could range from monthly to quarterly or annual payments, depending on the loan terms. Understanding these elements is crucial to ensure you can meet your repayment obligations without straining your business’s cash flow.

Making Your Business Appealing to Banks

Just like you would pitch to an investor, you need to present a compelling case to the bank to secure a loan. Here’s how to make your business appealing to banks:

1. Strong Business Plan: A well-crafted business plan is a must. It should clearly outline your business’s nature, market research, financial projections, and strategies for growth.

2. Good Credit History: Banks will check both your business and personal credit history. A good credit score can increase your chances of securing a loan and potentially get you a better interest rate.

3. Collateral: Banks often require some form of collateral for the loan. This could be business assets, personal assets, or both. Having collateral reduces the risk for the bank and can make your loan application more appealing.

4. Financial Statements: Up-to-date, well-organized financial statements can show the bank that your business is financially healthy and capable of repaying the loan. This includes income statements, balance sheets, and cash flow statements.

Remember, while bank loans can be a great way to fund your small business, they do come with obligations and risks. Be sure to thoroughly evaluate your business’s financial situation and consider all your financing options before deciding on the best path forward.

Small Business Grants and Their Benefits

If you’ve ever dreamed of receiving money to help your small business grow without the stress of repayment, then small business grants might be your golden ticket. Unlike loans, grants provide funds for your business that you typically do not have to pay back, making them an attractive option for business financing.

The benefits of grants extend beyond the financial aspect. Winning a grant can significantly enhance your business’s credibility, opening doors to more opportunities. Additionally, the process of applying for a grant can help you fine-tune your business plan and better understand your business’s objectives and goals.

How To Find and Apply for Suitable Small Business Grants

Small business grants are often highly competitive and come with specific eligibility requirements. To improve your chances of securing a grant, you’ll need to know where to look and how to apply effectively. Many grants are industry-specific or targeted towards businesses owned by individuals of specific demographic groups.

Start by searching for grants on local, state, and federal government websites. Additionally, numerous private companies and nonprofits offer grants. Be thorough in your research, and create a list of potential grants that align with your business and personal circumstances.

When it comes to applying, attention to detail is crucial. Ensure your business meets all the eligibility criteria, follow the application instructions to the letter, and submit your application by the deadline. Take your time to craft compelling, concise answers to any questions or prompts, focusing on how your business aligns with the grant’s purpose and the impact the grant funds would have on your business.

Real Examples of Small Business Grants Available

There are numerous grants available for small businesses across various sectors. Here are a few examples:

Federal Small Business Innovation Research (SBIR) Program: This competitive grant program encourages domestic small businesses to engage in federal research and development that has the potential for commercialization.

National Association for the Self-Employed (NASE) Growth Grants: NASE members can apply for these grants to finance a particular small business need.

Eileen Fisher Women-Owned Business Grant Program: This program supports innovative, women-owned companies that are beyond the start-up phase and ready to expand their business and their potential for positive social and environmental impact.

FedEx Small Business Grant Contest: FedEx awards grants and services to innovative small businesses in an annual competition.

These are just a few examples. The availability of grants can change, so it’s crucial to continually research and apply to maximize your chances of receiving a grant. Remember, each grant application takes time and effort, but the potential rewards can be substantial.

Business Credit Cards: A Flexible Source of Capital

In the fast-paced world of small business, having a flexible source of capital at your fingertips can be invaluable. This is where business credit cards come into play. Similar to personal credit cards, they provide a line of credit that you can use for various business expenses. This can include everything from office supplies and software subscriptions to travel expenses and even small equipment purchases.

One of the main benefits of business credit cards is their flexibility. Unlike loans, which are typically one-off lump sums that you repay over time, credit cards give you continuous access to a set amount of funds, as long as you’re paying off your balance. They can be particularly useful for handling cash flow gaps and unexpected expenses.

Understanding Credit Card Terms and Conditions

Before applying for a business credit card, it’s crucial to understand the terms and conditions. One of the most critical aspects is the interest rate, which can vary widely between cards. While most cards offer a grace period during which you can pay off your balance without incurring interest, if you carry a balance from month to month, you’ll be charged interest.

Other critical terms include the card’s credit limit, any annual or monthly fees, and the penalties for late or missed payments. Additionally, many business credit cards offer rewards programs, such as cashback or points for certain types of purchases, which can provide additional value.

6 Tips for Managing Credit and Avoiding Debt Pitfalls

While business credit cards can be a handy tool, it’s essential to use them responsibly to avoid potential debt pitfalls. Here are some tips:

1. Keep business and personal expenses separate: This makes it easier to track your business expenses and can simplify your accounting.

2. Pay off your balance each month: If possible, avoid carrying a balance from month to month to minimize interest charges.

3. Regularly review your statements: This can help you spot any errors or fraudulent charges and keep track of your spending.

4. Don’t exceed your credit limit: Going over your limit can result in fees and could negatively impact your credit score.

5. Make payments on time: Late payments can result in penalties and can harm your credit score.

6. Use rewards wisely: If your card offers rewards, make sure you’re using them to your advantage, whether that’s by strategically making certain purchases with your card or regularly redeeming your rewards.

Remember, while business credit cards can provide a valuable source of capital, they should be part of a broader financial strategy that also includes other funding sources and good financial management practices.

Microloans: Small Sums with Big Impact

In the landscape of business financing, sometimes smaller is better. This is the philosophy behind microloans, small loans that are often used by startups and small businesses that need access to a modest amount of capital. Microloans can range from a few hundred dollars up to $50,000, but are typically in the $500 to $10,000 range. These loans can provide essential funding for equipment purchases, inventory, or working capital, often at competitive interest rates.

One of the key benefits of microloans is their accessibility. Unlike traditional bank loans, which often require a solid business history and significant collateral, microloans are often more flexible in their requirements, making them ideal for newer businesses or those with less traditional business models.

Microloan Programs for Small Businesses

There are various microloan programs designed to support small businesses. Here are a few:

1. The U.S. Small Business Administration (SBA) Microloan Program: The SBA offers microloans up to $50,000 through intermediary lenders, often non-profit organizations. These loans can be used for working capital, inventory, supplies, and equipment .

2. Kiva: Kiva is a non-profit that offers microloans up to $15,000 at 0% interest for U.S. entrepreneurs . These loans are crowdfunded by a community of supporters worldwide.

3. Accion Opportunity Fund: This non-profit lender provides loans ranging from $300 to $100,000 to underserved business owners, including minorities, women , and businesses in low-income communities.

Applying for a Microloan: A Step-by-Step Guide

Before diving into the application process, remember that each lender will have its specific requirements. However, here are general steps you can expect:

Step 1: Assess Your Needs and Eligibility

Determine how much you need to borrow and what you’ll use the funds for. Research different lenders to see if you meet their eligibility criteria.

Step 2: Prepare Your Business Plan

Most lenders will want to see a comprehensive business plan that details your business model, market research, financial projections, and how you plan to use the loan funds.

Step 3: Gather Necessary Documents

This typically includes financial statements, tax returns, and legal documents like your business license. It may also include personal financial information.

Step 4: Submit Your Application

You’ll usually need to fill out an application form detailing your business information, loan request, and how you plan to repay the loan. Some lenders allow online applications.

Step 5: Interview and Negotiation

Some lenders may require an interview or meeting to discuss your application. If approved, you’ll then discuss the terms of the loan, including interest rate and repayment schedule.

Step 6: Loan Disbursement

If everything goes well, you’ll sign a loan agreement, and the funds will be disbursed. You can then start using them as planned.

Remember, while microloans can provide a valuable source of capital for small businesses, they are still loans and need to be repaid. Be sure to understand the terms and only borrow what you can afford to repay.

Equipment Financing: A Practical Route to Capital

When we speak about raising capital for your business, it doesn’t always have to come in the form of cash. Instead, equipment financing provides you with the machinery, technology, or other necessary tools you need to grow and enhance your operations. Essentially, equipment financing is a loan or lease that helps you purchase or rent business equipment, from computers to construction machinery.

One of the most significant advantages of equipment financing is that it allows you to get your hands on vital business tools without the significant upfront costs. Plus, the equipment itself serves as collateral, which means you typically don’t need to put additional assets on the line. This opens doors to businesses that may not have extensive credit histories or additional collateral.

How to Secure Equipment Financing

Here’s a basic roadmap to secure equipment financing:

Step 1: Evaluate Your Needs

Define the specific equipment you need, its cost, and how it will contribute to your business.

Step 2: Shop Around

Compare terms and rates from various lenders. Be sure to look beyond interest rates and examine the total cost of financing.

Step 3: Check Your Credit

While the equipment serves as collateral, lenders will still look at your credit history. Ensure your credit report is accurate and up-to-date.

Step 4: Gather Your Documents

Lenders may require your financial statements, tax returns, and a detailed business plan.

Step 5: Apply

Once everything is in order, submit your application.

Mitigating Risks in Equipment Financing

While equipment financing can be a valuable resource, it also comes with potential risks. One such risk is that the equipment may become outdated before you finish paying it off, leaving you paying for equipment that’s no longer competitive. To mitigate this, consider the lifespan of the equipment and align it with the term of your loan.

You also need to account for the total cost of the loan, including interest and fees, which can add up over time. Be sure to thoroughly read and understand the loan agreement before signing.

Lastly, remember that failure to repay the loan can result in the lender seizing the equipment. Therefore, it’s essential to realistically assess your ability to repay the loan within the set timeline. If in doubt, consider consulting with a financial advisor to help make the most suitable decision for your business circumstances.

In essence, while equipment financing may not boost your bank balance, it does boost your business’s capabilities, which can be just as valuable when it comes to driving growth and success.

Conclusion: Multiple Avenues to Capital

Over this journey, we’ve explored an extensive range of paths that lead to the same destination – raising capital for your small business. We’ve delved into the nuts and bolts of self-funding, embraced the warmth of friends and family, and surfed the waves of crowdfunding. We’ve met the angel investors with their keen eyes and open checkbooks, and stepped into the fast-paced world of venture capitalists.

We’ve understood the dependable steadiness of bank loans and the buoyant promise of business grants. We’ve wielded the power of business credit cards, discovered the humble yet potent microloans, and equipped ourselves with the understanding of equipment financing. In essence, the road to capital is vast and varied, and understanding these various routes is the first step towards your destination.

Yet, the important takeaway isn’t just the sheer variety of options available, but rather the understanding that each option comes with its own set of benefits, requirements, and potential challenges. Therefore, it’s crucial to not just seek out capital, but to carefully analyze your business’s specific needs, risk tolerance, and long-term objectives before identifying the most suitable funding strategy.

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How to Raise Capital for Business Growth

• Growth capital can help businesses significantly increase their value, but be clear on how these funds will drive growth.
• Once a business has a clearly-defined growth strategy, there are several financing strategies to evaluate.
• We’ll finish with some best practices and key questions for teams as they move forward raising growth capital.

“Begin with the end in mind” is an axiom made famous by Stephen Covey, author of “The 7 Habits of Highly Effective People.” Nowhere is this advice more important than when you’re planning to raise capital for business growth. Taking the time to make sure you really understand what you’re hoping to achieve with the capital you plan to raise provides clarity and direction. 

At the highest level, there are only three main reasons to raise growth capital. They come down to funding one or more of the following growth strategies:

• Faster core growth than the business’s cash flow supports;
• Inorganic growth, such as M&A or adjacent-market entry, to complement the existing core business; or
• Innovative new projects.

That’s it. Too many entrepreneurs make the mistake of viewing raising capital as a marker of success. It’s not! You don’t need to raise capital to be successful — for instance, in many situations, raising venture capital isn’t wise . Yes, raising capital can be a smart strategic decision to enable or accelerate growth when the business has a clear opportunity to do so and a strong plan to make it happen. But an outside financing event, of itself, won’t make your business successful.

Importantly, the three main growth strategies lend themselves to different financing strategies. Before we get to that, let’s discuss the growth strategies and their different potential outcomes. Because the details of your business may be nuanced, I’ll unpack each growth strategy with a few quick examples to help you think through which are applicable to your business. 

Then, I’ll finish with a few key questions to help leadership teams think through the growth strategy they’re contemplating before starting to raise capital.

Growth Strategy 1: Enabling Faster Core Growth Than the Business’s Cash Flow Supports

Sometimes this strategy is about operational efficiency or scaling up production. More typically, it’s about increasing sales, marketing and/or core product development investments; these may have a meaningful impact on growth but slower payback period. All of this often requires investment in more comprehensive business management systems, much of which is addressed in our Project $50M series .

Here, we’ll focus on the capital implications of such investments.

A simple case in point: new customer acquisition. The lifetime value of a customer is significantly greater than the cost to acquire the customer, but that lifetime of revenue is paid out over months or years. Meanwhile, incremental new-customer acquisition costs negatively impact short-term cash flow. Long-term, of course, those customers may contribute significantly to the bottom line. So the business needs to raise capital to cover the short-term hit in expectation of long-term profitability.

Management should pay close attention as it makes these investments that neither of the following are happening:

• Acquisition costs per customer are increasing as the business scales, and/or
• New customers are different in some way that may cause them to have a lower lifetime value — for example, maybe they churn faster.

Monitoring both of these are important when using growth capital for customer acquisition costs, because if either or both don’t track to your projections you can end up with a growing customer base but lower profits or, in extreme cases, losses.

Regardless of whether the growth capital is being used for acquiring customers, increasing operational efficiency or scaling up production, it’s important to make sure that spending eventually translates to milestones that make the investment worthwhile. 

Unfortunately, there are many companies that don’t have a reasonable path but keep consuming growth capital. Companies in this situation achieve what some growth equity investors call “profitless prosperity.” Eventually they will run out of investors to fund this “prosperity” and be forced to make dramatic reductions in expenses or face bankruptcy. 

Sometimes a business has already funded prior growth with outside capital but needs more capital to continue growing. It isn’t profitable today, but it has a clear path to profitability and doesn’t want to make the necessary expense adjustments to get the business profitable right now because that would diminish growth. This is very common for tech and life science startups given their significant early fixed costs. 

Alternatively, a business may be profitable and growing but see a clear opportunity to accelerate growth with outside capital. It may have started with a small investment or even bootstrapped to profitability. For example, consider a small consumer packaged goods (CPG) food brand that started by selling organic snacks to a few local retailers. After a successful trial in the local Whole Foods store, it has the opportunity to sell in all locations nationwide. The business scaled to this point using the owners’ capital and cash flow, but getting to the next level will require outside capital.

Two warnings: Businesses sometimes grow to this stage without needing the financial rigor that helps them accurately see all their costs, or their customer lifetime value. Investors will demand better financial management. Second, once businesses start raising capital for growth it often becomes hard to stop; many future financing rounds become necessary. Venture investors often describe this phenomenon as the “VC treadmill.” Think about these issues carefully before starting down this path.

Growth Strategy 2: Inorganic Growth to Complement the Existing Core Business

Adjacent market expansion.

Sometimes the strategy is to grow a business by expanding to a new market with similar customers and offering the same or a very closely related solution to those new customers. If the business has captured a significant percentage of its current target customers, then expanding the market may be the easiest way to continue growing.

A simple example: Imagine you run a very successful Greek restaurant that’s busy through the week and has long waits on Friday and Saturday nights. As you contemplate growth options, you may decide that you have captured most of the target market in your town. Therefore, instead of finding a larger location in your existing town (Growth Strategy 1), you decide to open a second location in a neighboring town. You are choosing Growth Strategy 2, expanding to a new market with similar customers instead of trying to continue growing your current market.

Management should pay close attention as it explores this strategy to ensure that new customers in the adjacent market are behaving similar to existing customers. This often can be done by conducting small-scale tests ahead of making a significant investment.

Too many businesses push into opening new markets without validating that customers really are like those in their existing market, often because leaders don’t think creatively enough about how to validate a concept. In the context of a restaurant, lack of such validation could result in opening that second location in a community with significantly different demographics and, therefore, food preferences.

So imagine our restaurant’s new target town is a 30-minute drive away from the current location. Management might initially argue there is no way to “prove” customers will order from their Greek restaurant without signing a lease and opening a location. But if pushed not for “proof” but merely to increase their confidence, they might do one or more of the following experiments:

• Analyze their customer loyalty program to find the small percentage of existing customers from the planned new town who are traveling to their existing location. Conduct qualitative research — say, interviews over a free meal — to get these customers’ feedback on the new location.
• Set up a limited-menu offering at the local farmer’s market or similar “pop-up” location for a few weekends to test demand.
• Do targeted marketing to the new town with a coupon offering 10% off your meal with a unique code and then track the conversion of those campaigns.

An important point about this strategy is that in each of the three example tests above, you are doing an experiment for the purpose of validating or invalidating your assumptions about that new market. You aren’t investing in marketing to efficiently acquire customers; you’re investing to learn about a potential new market.

Expansion via M&A

Often, companies will explore inorganic growth via acquisition. For example, if you run a service business with 10 plumbers in your city, you may decide to acquire another similar service business in a neighboring city to enter that market. 

On the surface, this can be really appealing. It can feel like a way to accelerate the speed at which you can scale in this new market. But keep in mind the advice of Roger Martin, former Dean of the Rotman School of Management at the University of Toronto. Martin pointed out in the Harvard Business Review that most acquirers focus on the wrong thing and, therefore, M&A fails up to 90% of the time. His advice:

Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.

This insight applies to businesses large and small and is particularly important when thinking about leveraging an acquisition to accelerate inorganic growth. Don’t think about the acquisition target’s ability to get you into a new market. Instead, think about how your company can bring unique resources, expertise and systems to make the acquiring company a stronger and better entity after the merger.

In the case of the plumbing business, instead of focusing only on the customers it’s buying, the acquiring company could consider how it can bring efficiencies through, perhaps, its route management software and simplified mobile sales system.

After all, if the acquisition target is already successful and growing, you have to ask: Why is the owner letting you acquire it for a good price? On the other hand, if you can step in and truly make it a much better business, that could be a great way to enter an adjacent market.

Growth Strategy 3: New Innovation Projects

Here, the focus is on innovation to develop new products or services. In some cases, a new product or service will be incremental innovation developed for existing customers. For example, consider a very successful moving business with a fleet of 20 trucks. Instead of trying to grow to 50 trucks (Growth Strategy 1), you may develop other logistics solutions to sell into your existing market.

Alternatively, an innovation project could be transformative, like launching a new solution for new customers. For entrepreneurs who have conceived, launched and scaled successful businesses, this is often a helpful way to scratch that entrepreneurial itch. Beyond the personal motivation of founders, it’s often strategically wise to build new lines of business that support future ambitions. However, the risks around a new line of business failing are very similar to the risks of any startup failing — in other words, quite high.

Therefore, the leadership team should make sure it has a good understanding of its unique competitive advantage to develop that new solution. There are scenarios where this may make sense, and you may have a great advantage. If you run a successful residential electrician business you may encounter a common electrical problem in all condos in your area and decide to create a new product to solve it, based on your expertise as electricians. 

Just make sure you validate as many assumptions as possible as quickly and efficiently as possible — especially assumptions around why your new customer cares about the problem you’re solving. Similar to the Greek restaurant example in Growth Strategy 2, you can often test assumptions in creative and cost-effective ways early on. This is critical because leaders often get focused on how to solve a given problem in a novel way without ensuring customers care about the problem. Said another way, most innovation fails not because “it” can’t be built but because there isn’t enough customer demand.

The key questions leaders should ask themselves as they explore each of the three alternative growth strategies:

Key Questions for Each Growth Strategy

If management can confidently address the key questions in the table related to its chosen growth strategy, and confidently sign up for the related business projections, it will likely lead to a very positive outcome. If not, the company is likely to be in a worse situation after raising incremental debt or equity financing.

2 Different Business Financing Strategies

If you need outside capital to execute against one or more of the three growth strategies, at the highest level there are only two ways: Get a loan or sell some of the business’s equity. Of course, both approaches come in a variety of flavors that are worth exploring.

1. Business loans

In general, if a business translates its capital into incredible growth, a loan is the less expensive route because you haven’t given up any equity — or a very small amount if warrants are issued as part of the loan deal. Therefore, once the loan is repaid, all of the increase in equity value goes to the owners. On the other hand, taking a loan requires confidence that you can repay it from future cash flow. 

Banks provide credit in a number of different forms, but most of these, such as a line of credit, are focused on smoothing out a business’s cash flow. When focusing on financing growth, the options are surprisingly limited — and term loans are the most typical approach. While specific repayment terms, interest rates and loan amounts vary by the lender and specific loan product being offered, since we’re focusing on growth capital that usually means multiyear term loans. So we won’t discuss short-term loans, which are more typically used as an alternative source of working capital, not growth capital.

When thinking about a term loan, you should review the offer in detail, but the key questions to focus on are:

• Is the interest rate fixed or variable?
• What is the repayment schedule? For example, is there a “balloon payment” at the end of the loan?
• Is there a prepayment penalty?
• What collateral is required to secure the loan?

Revenue-based financing is an alternative to term loans that has a distinct advantage. In this model, which shares characteristics with income-driven student loan repayment plans, rather than fixed monthly payments the business’s payments are instead tied to its revenue growth. The nice thing about this alternative funding model is that if sales slow, repayments slow in parallel until the business resumes growing. On the other hand, if a business’s revenue grows faster than projected it will repay the loan sooner than projected. This model is sometimes described as “royalty-based financing,” because the business is effectively paying a royalty on sales until its total debt is repaid.

While closely related to factoring receivables and merchant cash advances, revenue-based financing is for larger growth capital needs, whereas factoring receivables and merchant advances are more typically used to smooth out working capital fluctuations. For example, when a company factors receivables, it is effectively accelerating collection of already contracted sales. Operationally, it does this by selling the receivables to a third party at a discount in return for quicker access to cash. In revenue-based financing, your future revenue secures the loan.

If pursuing revenue-based financing, it’s important to truly understand the cost of the capital being provided. While the flexibility is often quite compelling, the business must be able to operate on its remaining gross margin after making the payments.

2a. Selling equity as a private company

The alternative to loans when raising outside growth capital is to sell some equity in your business. In general, this is a much longer term — and more significant — commitment between the company and its source of capital. Unlike a loan, when you sell equity to obtain growth capital, the source of the capital shares in the long-term appreciation of the business and, in some cases, may end up with ownership control.

You may have heard equity investors called private equity investors, growth equity investors or venture capitalists. These labels had more meaning a decade ago, but since then the distinctions between them have grown blurry. In this article, we’ll refer to them all as private equity (PE) investors. And there’s one thing all PE investments share in common: A company’s owners, including its board of directors (if any), agree to sell part of their business to a PE firm in return for a growth capital investment. So, the central question in a PE deal is, What percentage of the company are we selling?

The standard way PE firms think about this question is that the company had some value before the investment (the “pre-money” value) and adding capital raises that to a new value (the “post-money” value). The math is actually simple: If the company was worth its pre-money valuation before raising capital, then the pre-money value plus the new capital raised equals what the business should be worth after. While determining valuation is often more art than science, both sides will assess comparable companies to help them determine these valuations.

How PE investments work

As an example, imagine a business is valued at $30 million before investment. A PE firm invests $10 million into the business. The business would then be worth $40 million — $30 million + $10 million.

Ownership percentages are calculated based on the post-money valuation. The PE firm owns a percentage equal to the value of its investment divided by the post-money valuation, while the previous owners’ percentage is the pre-money valuation divided by the post-money valuation. Coming back to our imagined business, the new PE investor would own 25% of the company post-investment ($10 million/$40 million) and existing owners would own 75% ($30 million/$40 million) of whatever percentage they owned before the transaction.

To effect this ownership change, the company issues new shares for the PE firm based on an agreed-upon price per share derived by dividing the total shares outstanding by the pre-money valuation. In our example, if the business has a $30 million pre-money valuation and 3 million outstanding shares, then each share is worth $10. The company issues 1 million new shares at $10 each for the PE firm, which amounts to 25% of the new level of 4 million total shares outstanding. The company is committed to spending that investment in ways that significantly >increase its enterprise value , and all shareholders reap the rewards of that appreciation.

Of course, in real life these transactions end up being more complicated than this basic math. One common complication is a secondary offering, where founders and early employees or investors also sell part of their stake to the new investors, thus receiving a partial liquidity event. The most common reason for this is to give the early employees or founders an opportunity to diversify their personal net worth. In many cases, this aligns the investors’ and founders’ attitudes toward risk, because the founders no longer have all their net worth concentrated in one illiquid security.

A secondary transaction as part of a growth round is a similar, but different, process than completely preparing a company for sale . But because some PE firms prefer to acquire entire companies outright, sometimes a company that begins investigating equity options to raise growth capital ends up in a transaction where PE investors buy all of the company. Where that becomes a possibility, the transaction should be evaluated against other acquisition options, such as a strategic acquirer.

How to evaluate a PE term sheet

Typically, the first step in a PE deal is for the investors to provide a term sheet that specifies the key business conditions of their offer to invest. Besides spelling out proposed ownership percentages, term sheets may include provisions that can have a dramatic impact on potential outcomes. 

Key questions to ask yourself when reviewing a term sheet include:

• Is there a control provision? Control provisions give the new investors rights that allow them to block sale of the business at a certain valuation, or to specific companies, or both. If investors request this, it’s crucial for leaders to think through the implications upfront. A future acquisition offer the founding team is excited about may not be equally exciting to the PE firm. Control provisions can end up eliminating the option completely even if it would be the choice of the founders.
• Do the PE investors get a board seat? In many ways, adding investors to your board can be helpful. They bring connections and experience across a portfolio of investments that often add value to strategic discussions. But some investors aren’t so helpful, and can even become a huge distraction in certain situations. If you are going to add an investor to your board, it’s important to talk to other CEOs who have had this specific investor — not just the firm but the actual partner — on their boards.
• Do they get budget or expense approval over a specific amount? While it may not seem like a big deal, keep in mind that you and the management team may not be used to having to loop other people into these decisions. Again, the new investors may have helpful perspectives, but it may also take a lot of work to get them to understand why certain expenses are necessary.
• Do they have inspection/information rights to specific financial statements? On the surface, this is very straightforward: The investors get the right to understand what’s going on in the business they’ve invested in. However, it can create work you and your team aren’t anticipating. For example, if annual financial statements need to be audited, then you should make sure you are accounting for that in your plans, both in terms of the effort to do an audit and the expense of hiring an audit firm.
• Do they have the right to participate in any future financing events to maintain their ownership percentage? These are typically called “pro-rata rights” and are just that — rights, not obligations. In other words, investors with these rights aren’t required to maintain their ownership percentage but must be offered the chance to participate in future financings. If a large professional PE firm chooses not to exercise its pro-rata rights, it can be seen as a concerning signal: What does this existing investor know that I don’t? But when the PE investor is a high-net-worth individual, aka an “angel,” or a smaller fund, the signal is less clear.

Understanding liquidation preferences

Of all possible term sheet provisos, liquidation preferences can become the most impactful, depending on the eventual outcome. It’s almost always the case that the PE firm’s stock gets a preferred return in a sale (liquidity event), before proceeds are divided based strictly on the percentage of shares owned. Typically, such liquidation preferences are roughly equivalent to the amount of capital invested by the PE firm, but can be multiples of that as well. 

There are two ways a liquidation preference can work. More commonly, the investor has to choose either to use its liquidation preference or just divide the proceeds based on ownership percentages. This is called a “non-participating preference.” However, in some cases, the investor will get its preferred return and then participate based on ownership percentages, which is called a “participating preference.”   

To illustrate the impact of liquidation preferences, let’s come back to our example business now worth $40 million after a PE firm purchased 25% of the company for $10 million, and consider the impact of four possible liquidation preferences.

$10 million, and consider the impact of four different possible liquidation preferences.

PE Investor Liquidation Preference Options

Scenario 1: $30 million sale.

In this unfortunate scenario, the company later sells for what its pre-money valuation was when it received the $10 million investment. This obviously is not what anyone was hoping for when the PE firm invested, but it does happen. In this case, if the original owners looked at their 75%, they might expect to receive $22.5 million (75% of $30 million) but because of the liquidation preference, they won’t receive that in any of the situations.

Scenario 1: Liquidation Preference Impacts

Scenario 2: $75 million sale.

In this scenario, the company grows in value from the $40 million post-money valuation to sell later for $75 million. Again, if the original owners looked at their 75% they might expect to receive $56.25 million. But they only receive that in option one, where the PE firm chooses to take its proceeds from the ownership percentages instead of using its liquidation preference, because with a non-participating preference, the returns are greater from its ownership percentage. This is called “clearing the preference stack.” 

Scenario 2: Liquidation Preference Impacts

Scenario 3: $150 million sale.

In this scenario, the company will clear the preference stack in both options one and three, which is why those options have the same proceed distribution in the accompanying table. But for options two and four, the PE firm gets its preferred return ahead of dividing the remaining proceeds based on ownership percentages. This is important, because it shows no matter how good the outcome, a participating preference will always have a significant impact on the ultimate return calculation.

Scenario 3: Liquidation Preference Impacts

2b. selling equity as a public company.

Historically, most companies went public via a traditional Initial Public Offering (IPO) process. Today, companies have more options when contemplating going public. Specifically, an increasing number of companies are going public via direct listings or special purpose acquisition companies (SPACs). All three options can raise significant growth capital — and allow founders, early employees and investors to cash out some or all of their liquidity.

Traditional initial public offerings

Investment bankers drive the traditional initial public offering (IPO) process . The first step for business owners is to evaluate different underwriters and select one or more of them to work with. Once selected, the underwriters work with the company to develop the required documentation (most notably the S1) and then market the shares to institutional investors via presentations (called a roadshow).

Based on demand from investors, the underwriter sets the terms of the IPO. The company then issues additional shares at those terms and sells them (typically to institutional clients of the investment bank) to begin the public trading of the stock. While the bankers are well compensated to set these terms correctly, often the stock jumps in value quickly once it begins being publicly traded or, in less fortunate cases, falls.

While some argue that such an opening day “pop” in value is good, increasingly companies are pushing back. This includes Bill Gurley, one of the most successful venture capitalists of all time, who has publicly challenged this process and advocated for direct listings.

Direct listings

Unlike an IPO or SPAC, there are usually no new shares issued to raise capital in a direct listing. Therefore, it’s typically not been a source of new growth capital. However, recently this changed with the New York Stock Exchange (NYSE) getting SEC agreement to allow direct listings that also include raising capital. So direct listings are becoming a potential alternative to raise growth capital, though only on the NYSE for now.

The biggest advantages to a direct listing are that the process is much simpler than an IPO and it doesn’t require the time and expenses often involved in a traditional IPO. However, without the support of underwriters pitching their institutional clients, you’ll need to find another way to ensure there is demand for the company’s stock when it goes public. This is why you generally only see companies with strong brand awareness, like video game provider Roblox, pursue a direct listing.

Special purpose acquisition companies

Think of a SPAC as a “shell” company that goes public to raise money to acquire a successful private company. This may be the easiest way for a company to access growth capital from the public market, because the SPAC is already public when it makes the acquisition. While SPACs have been around for a long time, they have recently become more popular as an alternative path to becoming a public company.

SPACs are unusual, and so there are a few unusual factors to consider in pursuing one:

• Sponsors: SPACs have sponsors — the group of individuals who launched the SPAC via their own traditional IPO, with a goal of finding a company to acquire. Sponsors receive 20% of the new company as founders shares, for a nominal fee — often $25,000.
• Time limit: Typically sponsors have two years to find a company to acquire and bring that company public via a process called “de-SPACing.” The first step is to agree with the target company on key terms such as valuation. Once those terms are agreed, the sponsors also need to get the initial investors in the SPAC to approve the acquisition.
• Debt partners: Finally, the acquisition price almost always requires more capital than the SPAC raised in its IPO. Therefore, before the new target company goes public, the SPAC sponsors need to raise additional capital. Now that the target is known, this can typically be done via hedge funds and other institutional investors providing additional money via a public investment in public equity (PIPE) transaction.

If you’re talking to SPAC sponsors, be sure of their ability to raise additional capital, and know their timeline. If they don’t complete an acquisition in the agreed-on time, the SPAC dissolves and the investors who purchased shares get their money back.

Business loans vs. equity financing

Now that we’ve walked through loans and equity financings, let’s map these back to the three growth strategies. The main decision criterion usually is the amount needed to fuel the growth plan.

In general, if you need a lot of capital, it’s easier to secure via equity than debt — in fact, some growth strategies require so much capital that equity becomes the only option. This is both because PE investors tend to think longer-term than bankers, and because it avoids encumbering the company with massive loan payments. You can raise more capital with equity than with debt at any given point in time.

However, if your business can manage the necessary loan payments to get all the way through its growth curve, loans are the better option because the owners get to keep all the value of the business’s appreciation.

Table 6 summarizes key considerations to help think through the loan-versus-equity decision for each growth strategy.

Best practices for raising capital

Scenario plan..

When you think through each of the different growth capital raising strategies laid out above, there are a range of possible outcomes. If owners and the board align on executing against one or more of these, it’s important to think through different outcomes for each strategy in a scenario planning exercise. Then think about the implications to equity holders and, if a loan, debt holders, based on these outcomes.

Don’t perpetually fundraise, but continuously build relationships.

Each of the sources of capital above have folks on their teams tasked with building relationships with entrepreneurs. Business owners could fill their calendars meeting with these folks. While it’s important to constantly be in relationship-building mode, most of the time you should be clear you aren’t fundraising but are just getting to know them. To that end, you want to spend more time listening versus talking.

Also, keep in mind that any figures or financial results/projections that you share with them will not be forgotten. Therefore, less is more. Keep them interested and make sure you have enough of a relationship that when you want to raise money, you know who to call.

Always be qualifying.

  You also want to constantly be qualifying potential investors. Keep in mind, as in sales, a “no” is the second-best answer. An investor perpetually telling you it “may” be interested can often lead to you wasting a lot of time. Make it easy for those who aren’t interested to opt out, so you can focus on qualified potential investors.

When ready, run a process.

It’s distracting to raise growth capital. What you want to do is minimize the distractions and keep the timeline short. This starts with preparation. Prepare the required documentation and have it ready to share in a secured data room, which is PE/M&A parlance for an encrypted, password-protected folder.

Key questions in raising capital

Are the owners and board aligned.

As you think about the different folks who are going to weigh in on the financing decision, it’s important to understand their different incentives. A founder who has spent seven years building a company looks at both upside and downside potentials differently than an investor who has a portfolio of early-stage companies on a strong growth trajectory. This is manageable, but it’s important to make sure you understand the priorities and get the groups aligned on the ultimate growth strategy and capital required.

What are you optimizing for?

Related, everyone needs to know what you’re optimizing for with the financing strategy you ultimately choose. For example, if you choose to finance growth via a traditional term loan, everyone needs to understand the risk if you are not able to make payments — including potential expense reductions, and even becoming insolvent in extreme cases.

Do you hire a banker?

Obviously if you choose to go public via a traditional IPO you’ll need to hire a banker. However, in many other situations, it can still make sense to involve a banker. They can help enforce the timeline, have additional relationships that can be included in the pool of potential investors and often have insights based on prior transactions that can help manage expectations and the process. There are real fees that come along with bankers, so you should be sure how the individual will have a positive impact.

Is the financier a good partner?

Especially when you talk about selling equity as a private company, the groups that you’re getting involved with are long-term partners. You need to make sure they are aligned with you on the vision for the company. However, this isn’t limited to equity partners; it’s also important to make sure the investors providing loans are folks you are aligned with.

One thing I always recommend is that as the investor moves into diligence on your business and starts checking your references, you should also ask to talk to their references. And specifically ask to speak with companies they worked with where the deal didn’t ultimately work out. When everyone makes money and an investment works, it’s relatively easy for entrepreneurs to speak highly about their investors. However, you can really gauge the value an investor can bring from experiences where things became difficult.

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A Guide To Raising Capital for Startups

How To Fund Your Startup

What Are Your Options for Raising Capital?

How to get funded, consider the future, frequently asked questions (faqs).

Tom Werner / Getty Images

Once you decide to start your own business, one of the most important factors is funding your idea. As a founder, fundraising—whether one-time or ongoing—is a key part of the job description. While many entrepreneurs believe they must save up and invest their own capital to make their dream a reality, or what is called bootstrapping their startups, there actually are many ways to raise money for your startup, even though it can sometimes be a lengthy and challenging process.

Most startups rely on a combination of fundraising options and by stages, starting with grants, microloans, angel investors, and ending with venture capital (VC) funding, as a way to seed the startup and allow it to grow at an exponential rate if the business model allows for it.

Before starting your fundraising journey, however, you must lay the groundwork by doing your research, leveraging your network, and thinking realistically about how much cash you will need. In this guide, we will go over assessing your startup costs, different types of cash sources to consider, and how to go about closing the deal.

Key Takeaways

• Before seeking outside capital, you must know your financial projections and capital needs inside and out, even if your product is not yet on the market.
• Don’t just consider what you need to get started—make sure you include what you’ll need to stay afloat when fundraising.
• There are many different avenues that founders use when seeking capital, so make sure to consider the pluses and minuses of each type of funding to assess which is right for your business.
• Craft a solid pitch deck, hone (and re-hone) your pitch, and take advantage of your network to connect with and win over the right investors for your company.

Startup Costs

Regardless of the size of your future company, the first step is to understand how much you’ll need to get off the ground. This exercise is necessary for founders, both as a way to understand the financial realities of their new business and because in order to raise funds, you will need to know how much your business needs on the first day as well as day 100. The quickest way to scare off an investor or a bank loan officer is by not being familiar with your own numbers.

Every business has different startup capital requirements . A brick-and-mortar operation might have licensing, inventory, and insurance burdens that an online startup may not. Most new business owners do not know all the detailed transactions that go into a business, so to calculate approximate startup costs for your company, you need to do research.

Speak to an accountant or bookkeeper in your chosen field, or employ an industry consultant and begin to think critically about everything that goes into running your proposed business.

If you’re at a loss as to how to figure the costs associated with your new business, connect with friendly founders who have done similar things. Finding a mentor or advisor for your business can be just as valuable as finding a source of capital.

Depending on your type of business, necessary costs might include:

• Web and app development
• Product design and prototype development
• Digital marketing
• Subscriptions to software as a service
• Cloud storage such as Amazon Web Services or Dropbox
• Outsourcing manpower and skills
• Licenses and permits
• Office space

Once you understand these costs, you can begin to formulate your initial capital needs and your revenue projections. Build a worksheet and itemize your startup financial burden. Don’t forget to leverage your own skills and experience to keep these costs down. Consider doing the marketing yourself, or lean on a handy friend to help with the build-out of a space.

There are many different ways to fundraise for your new business, but there is no one-size-fits-all approach, even within the same industry. Before beginning your fundraising journey, consider how much equity you’re willing to part with (if any), and how much input you’re willing to hear from outside voices. Regardless of the size of your future business, having a plan can help you understand how you might piece together funding from different sources to meet your goals.

Bank Loans and Lines of Credit

Although it may seem like an obvious choice, traditional bank loans and business lines of credit are very hard to secure for businesses with less than two years of tax records. If they are an option, they often set steep collateral requirements.

The best avenue for debt financing is likely through U.S. Small Business Administration (SBA) microloans, which are loans less than $50,000 given to help businesses get started and expand. They are available through certified intermediaries and likely require some personal collateral or guarantees from the owner.

Alternative lending, which takes place outside of a banking institution, may be better suited to a new small business. Consider the SBA’s Lender Match program, or check your state’s division of small business for lists of lending alternatives.

Angel Investors or Friends and Family

Without an established business history, one way many founders start their fundraising is with friends and family or angel investors. This type of capital is usually unique to each individual deal, meaning there is more flexibility with deal terms. You may be able to raise debt capital , meaning borrowed money, from one family member and take an investment from another.

Angel investors are non-institutional investors who may be entrepreneurs themselves and often have a passion for helping small businesses and startups. They may agree to offer capital in exchange for debt or equity. Extending your network can help you connect with individuals who are willing to invest, often without interfering too much with your business. Look for local angel groups, where like-minded individuals pool resources to make a more sizable investment as a group.

Crowdfunding

Some startups find success through crowdfunding platforms. With this route, money is raised via the internet through different platforms, often in exchange for a “gift,” depending on the level of investment. The traditional method of crowdfunding allows founders to raise small amounts from a large number of people, with no obligation of repayment or equity disbursement. This type of funding usually requires some basic marketing, as well as a robust network of friends and family in order to succeed.

Recently, the U.S. Securities and Exchange Commission (SEC) approved equity crowdfunding, which allows for companies to sell securities to the public via a registered broker, although there are limits to how much a business can raise and to how much one can invest.

Accelerators and Incubators

Depending on your industry, applying to accelerators or incubators may be a good path to consider. These programs can support early-stage companies with mentorship, operations, marketing, and access to capital. Startups enter one of these programs for a fixed period of time and often work alongside other emerging brands in their industry.

Acceptance is often very competitive and may require founders to travel to partake in educational programming. Many are focused on growth-driven startups, so it’s worth considering whether your business is the right fit.

Venture Capital

Venture capital funding often is used to take a startup to the next stage once the idea has been commercialized. Venture funds are intended to be a short-term cash infusion to enhance a startup's growth. These funds are useful when a business has a viable idea but may not have many hard assets that a bank can use as collateral for a loan.

Because venture capitalists are investing in a balance sheet with the expectation of a profitable exit in the not-too-distant future, they often take a large equity stake and can be very involved in the operations of the business. VCs are usually industry-specific, and they usually invest in industries where they see massive potential for growth.

Family Offices

Family offices are entities established by wealthy families to manage their assets and provide tax and estate planning services to family members. They often participate in mission-driven investment and fall somewhere between a VC and an angel investor. Investments from family offices have variable deal structures, but their involvement in a business is often more similar to an angel investor than to a VC.

Many founders believe that grant money will be an easy source of capital, but the reality is that they are very hard to access. Most grant money has stringent requirements for distribution. The best chance at winning grant money is by seeking out highly localized opportunities rather than through the national SBA, but do thorough research on this option before building it into your plan.

Once you’ve identified the capital sources you’ll be targeting for your startup, the next step is to set yourself up for success. Whether you’re seeking a microloan, $10,000 from a friend, or a large investment from a VC, preparation is key to securing funding.

Know Your Financials

A founder must know their financials inside and out. In addition to startup costs, you should have a pro forma with at least three years of projections, a balance sheet, and a cash-flow statement .

You should also know how to discuss your projected earnings before interest, tax, and amortization, known as EBITA; cost of goods sold (CoGs), gross profit, and gross margin. Friends and family may not need as much financial detail, but banks, VCs, and some angel investors will want to fully understand the financials of their potential investment.

Hone Your Pitch

Having a strong and persuasive pitch is important regardless of which funding route you pursue. A good place to start is with a solid pitch deck, which should clearly explain your idea, your background, your potential market share, and in some cases, your exit strategy. Look for open-source templates , and remember to keep things straightforward and data-driven.

From your deck, craft and practice your two- to 10-minute pitch about why your idea has value in the market. Although loan officers and family may not want to see your pitch deck, they will certainly want to be “sold” on why they should trust you with their funds.

Activate Your Network

The best way to get funded is by using your network of friends and family. Not only will they be your first stop for early investment, loans, or crowdfunding, they also may have someone in their extended circle who could be useful. Most early-stage money is gathered via a “warm introduction,” especially when it comes to venture capital, so always look for ways to make a connection. Instead of outright asking for money or connections, asking for advice and feedback on your pitch is often a good way to start.

Following Up

Regardless of the outcome of your pitch, you’ll want to follow up. Don’t be afraid to reach out, ask for feedback, and stay in contact with everyone on your list. Plan to follow up with contacts three times; even if you don’t receive funding, it’s always good to keep potential investors in the loop on how your business is growing.

Beyond the basics of starting up, however, you need to keep your new business going. In addition to raising what you need on the first day, don’t forget to factor in what you’ll spend on a monthly basis.

Use your financial projections to assess how long it will take before your revenue can sustain your business and build any gaps into your capital search. A good rule of thumb is to seek six months of operating expenses.

Beyond that, consider how you see your business growing 12 to 18 months in the future. If you’re able to gain traction with investors or lenders, try to build those goals into your initial raise so that you have a longer time before needing to seek capital again.

Depending on your track record, some fundraising avenues, such as venture capital, might be better suited for later, when your business has established success and gained market share. You’ll have more leverage and may be able to negotiate more favorable deals at that point.

What kind of business is best suited for raising capital?

Businesses of all sizes raise capital at different stages. Startup capital is perfect for early- or idea-stage businesses. You may not need capital if your business can be sustained on revenue alone.

What is the difference between equity and convertible debt?

An investor may require a percentage of your company or equity, in exchange for funding. Another format often employed by angel investors is for the funds to act as a “loan” for a set time period, after which they convert that amount to equity shares in the company.

Within a business, who is primarily responsible for raising capital?

Generally, the founder or CEO is responsible for raising capital for the new business. As a business grows, other C-suite employees will likely join the fundraising team.

U.S. Small Business Administration. " Calculate Your Startup Costs ."

Michigan.gov. " Guide to Starting a Small Business ." Page 10.

U.S. Small Business Administration. " Loans ."

U.S. Securities and Exchange Commission. " Updated Investor Bulletin: Crowdfunding for Investors ."

State University of New York. " Grants & Small Business Financing ."

What Is a Capital Raising Strategy and Why Do You Need One?

by William Lieberman | Oct 7, 2020 | Capital Raising

In this post, we’re going to explain how to raise capital. We’ll discuss each of the steps involved and provide insight to guide your decisions, so you can prepare for and pursue funding for your business.

What Is a Capital Raising Strategy, Exactly?

A capital raising strategy is essentially a roadmap for how your organization will pursue and obtain the funds it needs to fuel its growth. The capital raising process can take a long time and it’s a serious undertaking. However, while you may stay up late at night searching for new investors, writing pitch decks , and pouring over financial spreadsheets, building your strategy is the simplest part of the entire process.

Creating a capital raising strategy allows you to break the process down into achievable chunks which include:

• Setting clear goals
• Financial preparation and readiness assessments
• Developing the right materials
• Practicing your pitch
• Meeting with investors

Each of these steps could have many more sub-points to it, so just like anything else in business, planning matters a lot since it creates focus. Thorough planning improves your chances of success and makes overwhelming projects, like raising capital, more manageable.

Setting Clear Goals for Fundraising

The first question you need to ask yourself is what exactly do you expect to accomplish by fundraising? Is there a specific area of growth or opportunity you’ve identified? Why go through this process now and not another time? Have you taken a good, hard look at your company and where things sit? How much money do you need, by when, and how will you use it?

If you have a CFO on your leadership team, you will want them engaged from the very beginning. If not, consider hiring a fractional CFO to provide insight and guidance for this specific initiative. Preferably one who has significant experience raising capital for growing businesses.

Having someone on board who has relationships with the investment community and who can guide you through this process is essential. Raising capital can be a full-time job and, as the CEO, you still need to run your business. You will need sound financial advice, preparation for tough investor questions, and attorney and tax professional referrals. Getting the right people in place now will ensure that you get the job done.

RETURN TO NAVIGATION

Financial Preparation and Readiness

Gaining a 360-degree view of your company’s financial performance and projections is the next big step. Arguably, the most important step.

As the CEO you need to be able to show potential investors that your company is ready for this. You’ll need to demonstrate that you’re doing the right things to be successful, have done your due diligence, and have gained some market traction. You’ll want to ensure your books are “clean” and have been independently audited. And, you’ll need to ensure that you have the right management team in place to make your vision a reality.

Without this groundwork, serious investors won’t even want to talk to you as these items are essential to mitigating risk. Furthermore, scrutinizing the structure and performance of your company will allow you to gather the information you need to clarify the type of funding appropriate to your business and to build and present a winning pitch. This part of developing a capital raising strategy will involve the following:

Pulling Together Your Story

You probably already have a business plan, a description of your management team, and plenty of materials that describe your products and services. These items are core to every business. If something is missing or unclear, however, now is the time to get on track. You will need these items for your pitch deck as they demonstrate the value of your organization.

For more information, I’d encourage you to read my post titled “ How to Increase Company Valuation .” It provides insight into how potential investors and/or buyers evaluate a company.

The Development of Comprehensive Financial Models

Set aside some time to take an honest look at your important financial documents and to clean up anything an investor might question. For instance, review existing performance forecasts. If the market or economic outlook has changed you may need to make some adjustments. Audit your current capitalization table . And, examine legal or corporate structure documents for any changes you need to make. Then, collect the data and prepare the necessary financial models and forecasts (also known as pro forma financials).

Any serious investor will want to see these documents before agreeing to part with their cash.

Clarifying the Ask: Equity, Debt, or Hybrid Structure?

Once you’ve reviewed the particulars of your business, it’s time to take a look at the benefits your investors will gain from the deal. Will they receive a partial equity stake in your company or the promise of you repaying their money with interest? There are many ways to structure a capital deal. You will need to present something appealing to investors, yet acceptable to you.

Consider doing a cost/benefit comparison between equity and debt , or evaluating what a hybrid model might look like. If you decide to focus on debt financing and leave equity financing for another time, some of the steps below won’t be necessary. Here are some important considerations for the structure of a deal:

• Priced round versus convertible debt
• Valuation or valuation cap
• Discount (convertible)
• Minority versus majority stake
• Control provisions
• Exclusivity 
• Liquidation preference
• Redemption rights

Understanding Appropriate Sources and Methods of Raising Capital

As your company begins to engage in capital raising, it’s important to realize that there are different sources of funds available at each stage. The list below breaks down appropriate sources by round. To improve your chance of success, it’s critical to determine the most fitting target for your business. As you might imagine, raising money for an early-stage startup requires a completely different approach than raising money for a more established business.

• Personal savings or personal credit
• Friends and family
• Angel investors
• Business accelerators & incubators
• Venture capital firms (VCs)
• High net worth individuals (HNI)
• Any of the above, plus:
• Debt providers
• Private equity firms (PEs)
• Hedge funds
• Any of the above
• Any of the above, plus the option of an initial public offering (IPO)

You might notice the absence of investment banks from this list. This is intentional because investment banks don’t provide funds themselves. They are “middlemen” that get the funds for you from – you guessed it – investors.

Also, note that crowdfunding is missing. Crowdfunding is a niche in the capital raising ecosystem. It gets a lot of press, but it’s just not a good way to launch anything other than maybe a side or hobby business.

There are, however, business incubators. Business incubators (or accelerators) fund startups. These are serious funding sources that didn’t exist ten years ago.

Developing the Right Materials for Fundraising

• Executive summary : the high points of what you are proposing
• Professional pitch deck : a summary of your business plan, management team, products and services, competition, growth history, and growth plans using new capital
• Press package : especially for an IPO
• Due diligence items such as patents, contracts, competitive intelligence, or any other documents that provide an accurate, legally sound justification of your company’s net worth
• Key assumptions about your business
• Revenue model
• Pro Forma income statement
• Balance sheet
• Statement of cash flows
• Cost of goods sold analysis (“bill of materials”)
• Personnel (hiring plan)
• Summary results with variance analysis
• Operating expense details
• Summary of key investment factors : points that help alleviate risk anxiety
• Pro Forma capitalization table
• Term sheet or letter of intent
• Legal documentation

The preparation and readiness work you did in the last step should have you well prepared for this one. But now is when it all comes together. This package must be rock-solid and extremely professional. It must tell a compelling, well-crafted (yet, truthful) story about where your business is today, where you’re going, and why your company would be a good choice for investment.

Identifying and Tracking Prospects

Once you have the necessary marketing materials, don’t forget to put a system in place for keeping track of your capital source prospects. This could be as simple as an Excel workbook to record names, contact information, dates, etc. Or, you may be able to integrate it with your existing customer relationship management (CRM) system — just be sure to create a new database specifically for capital raising so these new prospects don’t get mixed up with your regular customers and sales prospects. Also, be sure to restrict access to this fundraising prospect database so only the people with a real business need can access it.

Practicing Your Pitch

One of the most common pitfalls I’ve seen capital-hungry companies fall into is insufficient preparation for the pitch, so build time into your capital raising strategy for pitch practice. Even if you’re a confident public speaker, presenting to investors can be a nerve-wracking experience. A few practice rounds will ensure that you can share your passion (despite your nervousness), avoid errors, and get ready for the inevitable hard questions.

Consider your pitch from an investor’s perspective and anticipate their concerns. If you are able to practice your pitch on some “friendlies” who can ask some of the harder questions and critique your answers, all the better. This will help you iterate based on the feedback so you can be more successful when the time comes.

At the CEO’s Right Hand, we help our clients practice their pitches . We provide insight into things to say and what not to say. Then we do a thorough walk-through of important topics investors will expect you to address, such as:

• Traction to date
• Go to market strategy
• Intellectual property
• Management team experience/depth
• Monetization strategy
• Key performance indicators

Finally, we work with you to address any challenges until you’re 100% ready.

Meeting with Investors

The investor who ultimately decides to give you their money becomes a part of your company. Be respectful of their time (just as you would expect one of your employees to be) and avoid boring them with unnecessary details. And, don’t worry, the trusted team you assembled in step one will be at your side, to guide you through any rough spots.

Final Thoughts on Developing a Capital Raising Strategy

As an entrepreneur and the CEO of a growing company, you know capital raising is crucial. Yet the process can seem overwhelming – a minefield where one misstep can completely derail your dreams. That’s why developing a comprehensive capital raising strategy is so important. It forces you to take a critical look at your business and get everything in place before creating a pitch deck and engaging with investors. This will ensure that the time you spend raising money is productive.

Investors will expect you to have the keen financial and business insight necessary to answer the single most important question on their minds: “Do you have what it takes to ensure we both make money out of this deal, without undue risk?” But you don’t have to do this alone. At The CEO’s Right Hand, we provide capital raising services and can help you navigate the entire process successfully. Contact us today to discuss how we can help you get the funding you need to grow.

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Mr. Lieberman is the founder and CEO of The CEO’s Right Hand, Inc., a New York-based consulting services firm that provides the full breadth of strategic, financial and operational advice to founders, CEOs and Executive Teams. As an experienced entrepreneur himself, he has served in various C-suite leadership and advisory roles across a wide spectrum of industries.

His first venture was CMR Technologies, a FinTech company based in San Francisco serving the investment management consulting space. From CMR, Mr. Lieberman formed Xtiva Financial Systems, a software company specializing in sales compensation solutions for the financial services industry. Mr. Lieberman served as Xtiva’s CEO, building the company to over $10 million in revenues and 100+ clients. He also served as the President and CFO for Interactive Donor, a New York-based Benefit Corporation which incentivizes charity through rewards.

Mr. Lieberman holds double Masters degrees, one in Business Administration and the other in Computer Science from the University of California at Los Angeles. He completed his Bachelors in Computer Engineering from the University of California at San Diego.

Contact William Lieberman [email protected] 646-277-8728

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Find Investors & Raise Capital: Young and Mature Business Techniques

Raising capital is a key skill for business leaders, regardless of company size or maturity. This post addresses critical questions like the fastest ways to raise capital and simplifies the complex steps involved in raising capital, tailored for both emerging and established firms. Read about techniques like bootstrapping, crowdfunding, angel investors and venture capital that are often used by young, pre-revenue startups. We also explain options like bank loans, bonds, stocks and private equity that established firms rely on. With definitions of debt vs. equity financing and practical examples, you'll learn multiple ways companies can fund growth at any stage.

Defining Terms for Understanding Capital

Raising capital is something that you may have to do at any point in a business’s life cycle. Just as there are several reasons you may want to raise capital, there are also many ways to do a “capital raise.” We’ll begin with some definitions.

Financial Capital

What are capital raises, two basic methods of raising capital.

Equity Capital: Equity capital refers to money raised through selling part of the business. Like debt capital, equity capital can come from public or private sources. Unlike debt capital, equity capital does not need to be repaid. With equity capital raises, a portion of ownership in the company is sold to an investor. Investors expect that the business will grow and their equity will increase in value.

Convertible Debt: Sometimes, businesses seek to raise money with convertible debt. A convertible loan is a hybrid of debt financing and equity financing that includes a provision for converting the debt to equity based on some agreed-upon trigger.

Business Reasons to Raise Capital

Acquisition: There are many different scenarios where it makes sense for a company to acquire all or part of another company. In such cases, the acquiring company may need to find additional capital to make the purchase.

Managing debt: Just as it might make sense for a homeowner to refinance a mortgage for a better rate, a business might want to raise capital to save on interest payments. If the company replaces debt capital with equity capital, this is often called rebalancing the capital mix.

Realizing investment gains: Entrepreneurs and investors participate in companies to make money. Sometimes, companies will need to raise capital for the early investors to realize their profits and possibly exit the company.

Private Funding Sources

The earliest investors in a business are often the entrepreneur's friends and family, who may take an equity ownership position based on their faith in the entrepreneur. Alternatively, these friendly funding sources may offer the business a loan at favorable interest rates.

Banks and Credit Unions

SBA loans are issued by individual banks and credit unions and partially guaranteed by the Small Business Administration of the U.S. government. Specifically intended to help small businesses cover startup costs, SBA loans are available for various business needs but are time-consuming to obtain and are generally not available to micro businesses or those in early start-up.

Angel Investors

Venture capital firms.

Venture capital firms take an equity position in the company, with the size of the equity position commensurate with the amount of financial risk to the venture capitalist. Like angel investors, venture capitalists and venture capital funds tend to specialize in specific fields in which they have developed expertise.

Venture capitalists often take an active role in shepherding their portfolio companies to profitability. They may require a business seeking funds to change management, marketing, supply chain operations or even physical location as a condition of making their investment.

Crowdfunding

The basic mechanisms for raising capital through crowdfunding are by offering equity or rewards, and soliciting donations or loans. Rewards-based crowdfunding offers typically promise the individual funders a product, service or another premium in return for their financial support.

Public Funding Sources

The stock market includes many exchanges around the world. The several stock exchanges in the U.S. include the New York Stock Exchange, the American Stock Exchange and the Nasdaq. Bonds are sold "over the counter" and in the bond exchange.

Both the stock market and the bond market are extensively regulated. This post includes a basic introduction to these topics because of their capital-raising utility for mature businesses.

The Basics of Bond Financing

Corporate bonds are rated by bond rating firms based on their riskiness. They may be designated as investment grade, safe bonds or high-yield, 'junk" bonds. Investment grade bonds earn lower interest, while the higher yields of junk bonds are based on the riskiness of the debt.

The Basics of Stock Financing

Companies can issue preferred shares and common shares of stock. Both preferred and common stocks are equity instruments and offer investors dividends, or payouts on the company's profits, but there are many differences between the two. Common stock generally gives voting rights to the shareholder, while preferred stock doesn't.

Preferred shares offer several advantages to different types of investors, however. The first potential advantage is fixed dividend payments and payment priority over common shareholders' dividends. The second advantage is downside protection if the company fails. Common shareholders are the last investors paid out of company assets, behind debt equity holders and preferred shareholders.

The Financial Institutions and Markets and Investing electives in the University of Kansas online MBA program provide deep insights into these topics from both the business and the investor perspectives.

Capital Raising Strategies for Young and Mature Firms

Nonetheless, entrepreneurs start hundreds of thousands of businesses yearly, with roughly 30% surviving a decade or more. Almost a third of small business failures can be tied to cash flow problems, and the inability raise sufficient capital until the business becomes profitable. 1

The struggle to obtain financing through traditional sources prompted the growth of the crowdfunding industry. Crowdfunding, personal debt and funding from family and friends are popular ways to bootstrap a young business until it is able to attract venture capitalists or angel investors.

In addition to raising funds through bank loans and issuing stocks or corporate bonds, mature companies might seek equity investments from individuals or private equity firms. Just as with venture capital investments, private equity capital often comes with stipulations about how and where the business operates.

Learn How to Raise Capital for Any Firm at KU

• Retrieved on November 7, 2022, from fundera.com/blog/what-percentage-of-small-businesses-fail

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by James Hickson | February 09, 2022 | 11 min read

Everything you need to know about raising capital

Last updated: April 18, 2022

Let's examine two ends of a company spectrum. On one end, there is the seed company raising money to pitch a business idea to venture capital firms. And at the other, there is the decades or even centuries-old incorporated company with a healthy amount of cash flow. What do they have in common? Both entities must know how to raise capital.

This can be an overwhelming process for many businesses. But it also can mean the difference between success and failure regardless of your growth stage. To remove some of the pressure around capital raising, this article summarises everything you need to know.

We cover its importance, define key terms based on the stage of your company, provide guidelines for raising capital, examine key documentation, and give some key tips on how to raise capital quickly. If raising money for your business is a weak point, read on.

Table of contents

What does it mean to raise capital, why is it important to raise capital, how can a company raise capital.

A simple business definition for raising capital is when a business owner receives money from an investor or several investors to facilitate the start, growth, or daily operations of a business. Again, this can be a burden for some business owners. But most entrepreneurs consider it essential, and the cornerstone for their success.

A business owner might look at different fundraising methods to service different capital needs. These methods fall under two forms of fundraising: equity financing and debt financing – also known as dilutive or non-dilutive.

What is equity capital raising?

Equity capital raising is the process of raising money by selling shares of stock. This offsets the need to borrow money and creates debt. But it also dilutes the current pool of shares by increasing the total number of available shares. For capital raising, there are two types of shares sold: common and preferred.

Common stock shares give investors the right to vote, but that's all. And if the company liquidates or goes bankrupt, other shareholders will have first rights on any payments.

Preferred shares offer no voting rights and limited rights on ownership. Instead, preferred shareholders receive specific dividends before common shareholders receive payments.

Equity finance

When examining equity capital raising, you'll hear common terms like equity finance and equity funding. These all fall under the same umbrella. Equity finance also involves selling shares to investors to raise capital for business operations. But it's more of a blanket term that can include investment from friends and family, an angel investor (business angels) or other private investors, venture capital firms, private equity firms or institutional investors, or an initial public offering (IPO) on public markets.

You'll generally hear equity finance regarding public companies, but it also applies to private equity investment.

What is startup capital raising?

While equity finance can refer to capital raising for both established companies and startups, startup capital raising narrows the focus. When entrepreneurs have a solid business plan or prototype, they can raise capital in a variety of ways.

Startup capital can come from equity financing channels like venture capital, seed investors, angel investors, and institutional investors. But it can also come from debt financing channels like bank loans and bonds. Small businesses may also use credit cards to get things off the ground.

Debt financing can have a higher risk than equity financing, as startups will pay interest as part of their business loan agreement. But the bank will have no control over the company, and on fulfilment of the loan agreement is fulfilled, the contract dissolves.

Startup finance

Startup finance is another interchangeable term for startup capital raising. It includes all the means for a new business to either launch a product or grow the business – including dilutive and non-dilutive financing .

Unless you're sitting on tons of cash or your established business has a healthy cash flow, you'll need more money for growth and expansion plans. Many successful business owners boast that they never had to raise capital from venture capitalists, but it's not necessarily the best course. Here are some key reasons to raise finance for your business:

It's easier to scale your business – If you're beholden to interest payments on bank loans, it can make it difficult to launch a small business or project. Venture capital and equity investment make it easier to scale and often provide more money up front.

Capital gives your company credibility – When venture capitalists or private equity firms invest in your company, it shows others that your idea and business plan are credible. And venture capital firms often release news of the investment to the media to increase visibility.

You could gain access to additional resources – Raising finance often comes with access to additional resources. Think tax and legal resources along with access to extensive industry research.

The funding terms could be helpful – If you opt to work with an equity investor over a business loan, your business could receive better payment terms. You won't have to make monthly payments or pay interest at all.

When should you raise funds for a startup?

Business fundraising rarely happens just once. It happens in stages – known as 'rounds' – and each round has a different purpose and set of parameters. These are the common stages:

Pre-seed – This is the first investment and idea stage where a company has no customers or employees yet.

Seed – There should be a prototype or demo available of your product or idea at this stage.

Series A – Stage that raises funds to put a product on the market.

Series B-D and possibly more – Stages reserved for scaling, growth, and expansion.

Every company has a different path and different needs, so there's no actual premiere time for capital raising. Mostly, you can raise funds when you have a valid problem to solve and the demand for the solution is both viable and verifiable.

However, there are many valid reasons to wait before raising funds. You could need more time to generate interest in a solution before investors will bite. Or you have the funds to finance it yourself for a while. Another good reason to wait is that you may not have the time or resources to invest in pitching your idea to investors.

It's up to you as a business owner to consider the stages and reasoning for fundraising and discern what's best for your company.

Earlier, we defined what it means to raise capital, so now let's dive into the nuts and bolts of how you can do it for your company.

What are the methods of raising capital?

Each method for raising capital falls under the two forms detailed earlier: equity or debit. No matter which method you pursue, it's important to understand the reasoning for your choice.

Is it more helpful for your company to give up some equity in order to meet your goals? Or would your company profit more by taking on debt because you know you can pay back the loan quickly?

Regardless of which category you choose, you'll use the common methods detailed below.

3 common sources of equity capital

Note that the listed equity funding sources are outside of friends and family or money from your own pocket.

Angel investor or private investors – Angel investors are private individuals with a high net worth. They invest in small business startups or directly with entrepreneurs – with excellent business plans – in exchange for equity in the business.

Venture capitalists – These individuals generally work for venture capital firms and invest in businesses after angel investors. They tend to invest for longer terms and focus more on the growth potential of the company, as opposed to a solid business idea.

Initial Public Offering (IPO) – An initial public offering takes your company onto a stock exchange to raise capital from the public market. This option is complex, expensive, and usually only viable for established companies.

3 common debt capital sources

Debt capital comes from financial institutions through three common methods:

Loans – A company borrows money from a bank or government agency and pays it back over time with interest payments according to the loan agreement.

Credit lines – Companies use lines of credit to support growth. Obviously, you'll also pay interest using this method.

Bonds – Bonds are a corporate finance option where established companies allow large pools of investors to lend money directly to the company.

How does a capital raise work?

Capital raising happens when large or small businesses approach investors (equity capital raising), lenders (debt financing), or investment bankers – for both categories, and to process documents – with the purpose of raising capital.

Raising finance for businesses – new or old, big or small – requires tons of preparation and planning. Think about it – you're asking investors or lenders to commit their money to your company based on its potential for growth. You'll need to provide evidence that your business or idea has a high chance of succeeding and you'll be able to pay back these individuals or institutions.

What happens in a capital raise?

Capital raising can be a long process, so don't expect things to happen overnight. Below is a breakdown of both an equity and debt capital raise.

Unless you have a company to take on the public stock exchange, you can sum up the equity capital raise process in seven steps:

Determine your strategy for funding – This is the pre-offer stage where you'll define exactly what it is you're looking for in the capital raise. If you're giving an equity stake, how much are you willing to give up? If you're engaging in debt financing, how much debt are you willing to take on? And how high of an interest rate can your company pay and still accomplish its goals?

Organise your business details – You can't just pitch what's in your head. You must compile research, documentation, and accurate projections of the numbers your business can attain – revenue, profits, customers or users, etc.

Seek out investors – It's important at this stage to do your research and look at your network. Do you have a connection who can give you a solid contact? Or do you plan on reaching out to an investment firm? Working with investment bankers could be another viable option.

Create your pitch – Your pitch is where your capital raising campaign will live or die. It's important to create a presentation that's both immaculate and impossible to refuse. Then, present it to anyone and everyone who will listen and provide useful feedback to perfect your presentation.

Set up meetings – It's a numbers game, so don't expect every pitch to go well. But the more investors you pitch your idea to, the higher your chances are of getting funding.

Post-pitch due diligence – After your pitch, you'll need to follow through and provide even more evidence for the viability of your business or idea. This means possibly reaching out with more data and confirming your commitment.

Negotiation – This is also known as the closing process. You'll have to draw up paperwork and work out the finer details and work out what is in the best interest of both parties.

Sign the agreement – This is where the work begins. It's time to take the capital and put your plan into motion.

The process for raising debt capital can be similar equity financing if you're seeking a bank loan. You'll go through all seven of the steps listed above, but instead of pitching to investors, you'll pitch to lenders.

Otherwise, you'll take on debt through the form of a credit line. In this situation, you probably won't have to give a pitch. Instead, you'll need to show your business numbers to prove to credit lenders that you can pay back your credit loan and interest.

Documents to raise capital for your business

You'll integrate these key documents into a detailed business plan to raise capital for your business.

One-page company profile – Also known as an executive summary, this document provides potential investors and/or lenders with all the essential information they need at a glance.

A Confidential Information Memorandum – An exhaustive document ranging from 40 to 60 pages that details every aspect of your business. It includes your executive summary and lays out the elements of your company that prove it will be a success – product overviews, SWOT analysis, market opportunities, financial statements and outlook, etc.

A pitch deck – A pitch deck is like a CIM, except that it's much shorter – 10 slides – and has a lot of personality. This is what you should use to pitch your presentation to investors and lenders verbally and with enthusiasm.

A financial model – This is a spreadsheet that contains core financial statements and projections of how your company will perform in the coming years. You must include your balance sheet, cash flow statement, and business income statement and be able to show how those numbers came to be.

James Hickson is the CEO and Founder of Bloom Financial Group, the winner of numerous industry awards – most recently recognized as FinTech CEO of the year as well as Payment Service of the year by AI Global Media.

Bloom is a European Fintech company focused on small to medium business lending. With their proprietary technology, Bloom offers e-commerce and retail brands access to revenue based funding (between 25,000 EUR and 3M EUR).

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6 Easy Ways to Raise Capital For Your Business

From bootstrapping to crowdfunding, here's how to raise capital for your business..

By: Meredith Wood

If you’re looking for ways to raise capital for your new business, you’re not alone. According to a 2020 report by the Small Business Administration (SBA), small businesses borrowed $645 billion. That’s more than the GDP of Sweden!

More than half of all the businesses in the study who applied took loans of $100,000 or less. That adds up to a lot of small business owners looking for funding.

While money doesn’t grow on trees, there are a number of ways you can seek funding for your business—some more traditional than others.

How to Raise Funds for Your Business

Here are six ways you can raise the money you need to expand your business.

1. Bootstrap your business

Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture—and it may be more feasible than you think.

For instance, even if you don’t have enough in savings to run the operation, you could get a 0% / low interest APR business credit card, offering you the chance to borrow cash for a period of time without incurring interest.

Perhaps you think funding the business yourself carries lots of risk—and it does. But it’s important to consider your potential.

Brent Gleeson, a leadership and team building coach specializing in organizational transformations, states, “if you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing your own money into the business.”

Investing some of your own money will usually make investors and lenders more willing to partner with you down the line.

2. Launch a crowdfunding campaign

There are many crowdfunding success stories out there. And with the right product and pitch, you can be one of them.

For instance, in 2013, Formlabs, a maker of affordable desktop 3D printers, raised $3 million on Kickstarter . This capital allowed the company to scale their operation and achieve their goal of manufacturing affordable 3D printers for the public.

Eventually, the 3D printer maker caught the attention of venture capitalists. During a series A round, Formlabs closed $19 million in investments, giving them the chance to expand beyond their initial goals.

Crowdfunding gives you the opportunity to connect with like-minded people who you wouldn’t normally be able to engage. You can gauge interest in your product and understand what’s resonating with people and what’s not. This shows you how to improve your product and your pitch. Most importantly, crowdfunding can help you raise money to fund your business.

So, how do you launch a successful crowdfunding campaign to raise capital for your business?

Nathan Resnick, a serial entrepreneur who’s had success raising money on crowdfunding sites, stresses that you must develop your story , as “people on crowdfunding sites like Kickstarter or Indiegogo want to know how you turned your idea into a reality.”

Your video pitch must show the value of your product, the need it serves, and why you require support. Having a good website and doing PR outreach helps as well.

3. Apply for a loan

Even as technology creates new ways of raising capital, traditional financing products remain the primary way small businesses fund their operations. According to the Small Business Administration (SBA), almost 75% of financing for new firms comes from business loans, credit cards, and lines of credit.

Generally speaking, the small business loans with the most favorable rates and terms are going to be SBA loans and term loans from banks and other financial institutions. To get approved, you typically need to meet requirements like the following:

• You have been in business for 2 years or more
• The business has strong annual revenues (typically at least $100,000)
• Good credit (like a score of 640+)

These aren’t hard and fast rules and will differ depending on the lender. If you don’t qualify for a term loan with a good APR, there are other, albeit more expensive, types of funding available.

If you have outstanding invoices, you could opt for invoice financing to get that money faster. Or, if you need cash for machinery, tech devices, office furniture, or something similar, consider equipment financing.

Before applying for a small business loan, make sure to prepare any  loan documents you’ll need to show  ahead of time.  You’ll be asked to show a profit and loss statement, balance sheets, tax returns and bank statements. In some cases your personal information may be checked as well.

4. Raise capital by asking friends and family

Raising capital for a business through friends and family is a viable option for many. According to the Global Entrepreneurship Monitor, 5% of US adults have invested in a company started by someone they know .

Caron Beesley, a content marketing specialist and SBA contributor, advises that you ideally select a friend or family member with solid business skills. She also suggests that you “ narrow your list down to friends or family who have faith that you will succeed, who understand your plans, and who are clear about the risks.”

Once you’ve done that, Beesley stresses that you must demonstrate passion and due diligence by having a sound business plan and direction. Also, be realistic about how much money is needed.

Finally, make sure to agree on what form the funding will take. They could be a loan or equity in your company. If the money is a loan, agree to a repayment plan and use a P2P lending website to document everything and manage the loan.

5. Find an angel investor to raise capital for a business

By definition, angel investors are accredited individuals with a net worth exceeding $1 million or annual income of more than $200,000. They typically operate alone, but may team up with other angel investors and form a fund.

Knowing this, angel investors can be a good source of capital for your business. First, you must have a solid business plan put together and a great pitch ready. You have to capture their attention with enthusiasm and promising data points about your company’s current situation and future potential.

You may be wondering how you find angel investors. This might seem difficult, but many resources exist.

For instance, Funding Post arranges for angel investor showcases around the country. And the Angel Capital Association is a great platform to seek out, meet, and arrange pitches to angels.

6. Get investment from venture capitalists

Venture capitalists (VCs) typically want to invest in slightly more mature companies than angel investors and sometimes want to have more of a say in managing the day-to-day operations.

Since VCs have a responsibility to achieve certain returns for the firm or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.

If your company satisfies these requirements, you could apply for an investment with a VC firm. It’s not the easiest thing to accomplish, but plenty of small businesses have done it successfully.

Your pitch is crucial to obtaining funding. Sequoia, one of the most successful VC firms on the planet, stresses, “you need to convey the main reasons why an investor should love your business in the first 5 minutes.” Sequoia partners state you can do this in three simple steps, which are:

• Explain what’s changed. Detail the innovation, industry shift, or problem that presents substantial opportunity for your company.
• Explain what you do. In one sentence, show how your company can capitalize on this opportunity.
• Explain the facts. Get to your company’s story and financials quickly. Lay out the opportunity with numbers. Discuss the team and their abilities and experience.

Frequently Asked Questions

Can you explain the difference between debt financing and equity financing.

Two main ways a business can raise capital are debt or equity financing. Debt financing involves borrowing money from a lender or financial institution. It is then paid back over a set period. It also allows the owner to maintain full control of the business. 

Equity financing involves selling a portion of the business’s ownership to investors in exchange for capital. These investors become shareholders and may have a say in the company’s decisions and profits. Unlike debt financing, there is no fixed repayment schedule for equity financing.

What are some common mistakes to avoid when raising capital for a business?

One common mistake is inadequate preparation and research, which manifests in a poor understanding of the market and competition. Overly optimistic business valuations, often lacking concrete data support, can deter savvy investors. Entrepreneurs sometimes underestimate the importance of a compelling business narrative, failing to communicate their vision effectively. 

Next, ignoring potential investors’ needs and concerns is another blunder, as tailoring your pitch to their interests is essential. In terms of financial management, not having a clear plan for the funds or demonstrating poor money management skills can be detrimental. 

Lastly, insufficient knowledge about legal and regulatory requirements can lead to serious consequences. 

How important is having a solid business plan when trying to raise capital?

A solid business plan is vital when raising capital. It is a roadmap detailing the company’s vision, goals, target market, competition, financial projections, and operational plan. Investors evaluate these elements to determine the venture’s viability and growth potential. A robust business plan demonstrates strategic thinking, risk management, and financial savvy, enhancing investor confidence. 

The lack of a well-formulated plan can lead to skepticism about the entrepreneur’s preparedness and the business’s sustainability. This is why a comprehensive, clear, and compelling business plan is crucial in convincing investors that the business is worth their investment, significantly influencing the capital raising success.

Are there any government grants or programs available for small business owners to raise capital?

Various government grants and programs are available to support small businesses financially. These may vary by country and region but often include start-up grants, innovation grants, and research and development funding. In the U.S., the Small Business Administration (SBA) offers numerous loan programs, while the SBIR and STTR programs provide funds for technological innovation. 

The European Investment Fund offers support in the EU, and in Australia, the government provides grants through the Australian Small Business Advisory Services program. These initiatives can offer crucial financial support, but businesses must research and identify those most applicable to their needs and eligibility criteria.

How can networking and building relationships help with raising capital for a business?

Networking and building relationships are key to raising capital for a business. They provide opportunities to connect with potential investors, industry leaders, and other entrepreneurs who can offer advice, partnerships, or funding. 

Engaging with diverse networks can lead to introductions to angel investors, venture capitalists, or other sources of capital. Moreover, these connections often result in valuable feedback to refine business plans or pitches. 

Established relationships based on trust and mutual respect can also enhance investor confidence, facilitating more favorable investment terms. Thus, effective networking is about increasing visibility and forging strategic alliances that can significantly impact capital-raising success.

How do I determine the best financing option for my specific business needs?

Determining the best financing option for your business needs involves carefully evaluating several factors. Firstly, clearly define your funding needs: is it for startup costs, expansion, or managing cash flow? 

Next, assess your business’s financial health, creditworthiness, and risk tolerance. Different financing options, such as loans, equity financing, crowdfunding, or government grants, have varied costs, obligations, and implications. 

Consider the pros and cons of each, such as interest rates, repayment terms, equity dilution, and control over business decisions. Also, consider your industry, stage of business, and growth potential, as certain options may suit specific scenarios better. Consulting with financial advisors or mentors can provide valuable insights into making an informed decision.

Get the capital you need to drive forward

The key lesson here is that you have many options for financing your business. Don’t get discouraged if one doesn’t work out. By demonstrating due diligence and being resourceful and persistent, you can raise the capital you need.

Then, money will no longer hold back your business. You’ll be free to expand.

Meredith Wood is the Editor-in-Chief at  Fundera , an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more.

If you experience any difficulty in accessing our content, please contact us at 877.692.6772 or email us at [email protected] .

Raising Capital in 2024: Tips and Best Practices

2023 is now behind us, yet obtaining sufficient capital funding remains a significant challenge for startups. Although venture capital and angel investors continue to be key funding sources, the level of competition for investment has surged considerably.

Startups must effectively communicate a compelling business model, showcase their market potential, and demonstrate a robust growth strategy to pique the interest of potential investors. While raising capital is vital for their growth and progress, startups frequently encounter hurdles when it comes to finding investors and acquiring the essential capital they need.

In this article, we will delve into the essential tips for raising capital, drawing inspiration from the experiences of accomplished entrepreneurs. Let’s dive in.

Prepare in Advance

Before embarking on the your capital raising journey, it’s imperative to conduct exhaustive market research to understand not only the market opportunity, but also the competitive landscape thoroughly. Investors will conduct rigorous due diligence to evaluate your venture’s viability and potential. 

Gather all of the comprehensive information about your business, encompassing financials, legal documentation, and intellectual property rights in advance of going to market. Proactively addressing potential concerns will instill confidence in investors and enhance your prospects of securing funding. So be sure to identify potential investors whose interests align with your industry, your business model, and your core corporate principles. Delve into their investment preferences, previous investments, and success stories. Armed with this knowledge, you can tailor your pitch and approach to resonate with their specific interests. 

Remember, proper research and preparation offers a multitude of advantages. Firstly, it enhances your comprehension of the opportunity, enabling you to make well-informed decisions and present your case persuasively. Secondly, it establishes credibility, instilling trust in your judgment and expertise. Lastly, it paves the way for more favorable negotiation outcomes by providing a solid foundation for determining your value. In essence, thorough preparation serves as the cornerstone of not only securing funding but also realizing sustainable business growth.

Don’t forget that while they are interviewing you, you also need to be interviewing them, the investor you invite into your company is likely to be there for a while, make you’re picking wisely.

Recognize the Power of Building Relationships

Fostering relationships with prospective investors in advance of when you come to market is indispensable. Networking events, industry conferences, and online platforms offer opportunities to connect with investors. Cultivate these relationships by demonstrating your unwavering passion, expertise, and commitment to your venture. Remember, investors invest not only in ideas but also in the people driving them.  The better you know them, and the more you have demonstrated your ability to deliver on what you say, the more likely they will be to invest when the time comes.

Craft a Compelling Narrative

Investors are inundated with business plans and pitches, making it imperative to stand out from the crowd. Construct a captivating narrative that conveys your vision, market potential, and distinctive value proposition. Share your entrepreneurial journey, emphasizing the problem you aim to solve and how your solution stands out in terms of innovation, scalability, and achievability. A well-crafted story has the power to not only captivate investors but also the ability to convince the investor that the path to success is clear.

Never Underestimate the Value of a Robust Business Plan

While an engaging story is crucial, it must be underpinned by a sound business plan. Investors seek a clear roadmap to profitability and a realistic financial projection. Demonstrate an in-depth grasp of your market, competition, and potential risks. Illustrate how you intend to utilize the funds effectively to achieve significant milestones. Investors know that the plan your articulate is often not the plan that ultimately will be realized, but the better you understand the market the better you will be able to capitalize on opportunities and avoid pitfalls.

Understand Your Valuation

Business valuation is a pivotal aspect of fundraising negotiations. Entrepreneurs often err by overestimating their venture’s worth, which can deter potential investors. Unrealistic value expectations will make the investor question the entrepreneurs overall understanding of the opportunity and their ability to rationally approach challenges. Conduct extensive market research and solicit advice from industry experts to determine a fair and realistic valuation . A willingness to negotiate and adapt can augment your chances of securing funding.

Do Not Forget to Follow Up

After presenting your pitch to potential investors, it’s crucial to follow up with a personalized thank-you message and any additional information they may have requested. Building a robust rapport and maintaining open lines of communication can leave a lasting impression and keep you on their radar for future opportunities.

Raising capital may pose challenges, but it remains an indispensable task for entrepreneurs. By assimilating wisdom from accomplished entrepreneurs, we can circumvent common pitfalls and enhance our prospects of securing the requisite funding. Remember to conduct thorough research, nurture relationships, craft a compelling narrative, fortify your business plan, grasp valuation, handle due diligence adeptly, explore alternative funding avenues, and follow up diligently. By adhering to these dos and avoiding the corresponding don’ts, you’ll be well-equipped to navigate the fundraising landscape and propel your venture to new heights.

Let Cyndx Help You Identify the Right Investor 

Raising funds poses challenges for almost every company and entrepreneur, but it remains an indispensable task for entrepreneurs. By assimilating wisdom from accomplished entrepreneurs, we can circumvent common capital raising pitfalls and enhance our prospects of securing the requisite funding. Remember to conduct thorough research, nurture relationships, craft a compelling narrative, fortify your business plan, grasp valuation, handle due diligence adeptly, explore alternative funding avenues, and follow up diligently. By adhering to these dos and avoiding the corresponding don’ts, you’ll be well-equipped to navigate the fundraising landscape and propel your venture to new heights.

As an example, Cyndx empowers entrepreneurs by providing them with the tools to make better-informed decisions throughout the funding process. We recently introduced Cyndx Valer, a corporate valuation tool that complements our existing offerings, Cyndx Raiser which rapidly identifies relevant investors and Cyndx Owner, a cap table management software . 

Together, these three products contribute to a more efficient capital raise process, saving valuable time and money—two resources that are particularly precious for founders.

Elevate your fundraising efforts with Cyndx, the ultimate solution for entrepreneurs. Whether you seek investors, manage your cap table, or assess corporate valuations, Cyndx has you covered.

Don’t miss the opportunity to maximize your capital-raising success. Start with Cyndx today and supercharge your fundraising endeavors.

© Copyright 2024 Cyndx Networks LLC. All Rights Reserved.

Cyndx is not a registered broker-dealer or investment adviser. Cyndx does not sell any securities or give advice on investment decisions. In sharing information about companies and providing tools to manage your cap table and calculate your business valuation, we are not marketing the sale or purchase of securities or advising you on any investment or financial strategy.

• Small Business
• How to Start a Business

How to Start a Business: A Comprehensive Guide and Essential Steps

Building an effective business launch plan

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Conducting Market Research

Crafting a business plan, reviewing funding options, understanding legal requirements, implementing marketing strategies, the bottom line.

• How to Start a Business: A Comprehensive Guide and Essential Steps CURRENT ARTICLE
• How to Do Market Research, Types, and Example
• Marketing Strategy: What It Is, How It Works, How To Create One
• Marketing in Business: Strategies and Types Explained
• What Is a Marketing Plan? Types and How to Write One
• Business Development: Definition, Strategies, Steps & Skills
• Business Plan: What It Is, What's Included, and How to Write One
• Small Business Development Center (SBDC): Meaning, Types, Impact
• How to Write a Business Plan for a Loan
• Business Startup Costs: It’s in the Details
• Startup Capital Definition, Types, and Risks
• Bootstrapping Definition, Strategies, and Pros/Cons
• Crowdfunding: What It Is, How It Works, and Popular Websites
• Starting a Business with No Money: How to Begin
• A Comprehensive Guide to Establishing Business Credit
• Equity Financing: What It Is, How It Works, Pros and Cons
• Best Startup Business Loans
• Sole Proprietorship: What It Is, Pros & Cons, and Differences From an LLC
• Partnership: Definition, How It Works, Taxation, and Types
• What is an LLC? Limited Liability Company Structure and Benefits Defined
• Corporation: What It Is and How to Form One
• Starting a Small Business: Your Complete How-to Guide
• Starting an Online Business: A Step-by-Step Guide
• How to Start Your Own Bookkeeping Business: Essential Tips
• How to Start a Successful Dropshipping Business: A Comprehensive Guide

Starting a business in the United States involves a number of different steps spanning legal considerations, market research, creating a business plan, securing funding, and developing a marketing strategy. It also requires decisions about a business’ location, structure, name, taxation, and registration. Here are the key steps involved in starting a business, as well as important aspects of the process for entrepreneurs to consider.

Key Takeaways

• Entrepreneurs should start by conducting market research to understand their industry space, competition, and target customers.
• The next step is to write a comprehensive business plan, outlining the company’s structure, vision, and strategy.
• Securing funding in the form of grants, loans, venture capital, and/or crowdfunded money is crucial if you’re not self-funding.
• When choosing a venue, be aware of local regulations and requirements.
• Design your business structure with an eye to legal aspects, such as taxation and registration.
• Make a strategic marketing plan that addresses the specifics of the business, industry, and target market.

Before starting a business, entrepreneurs should conduct market research to determine their target audience, competition, and market trends. The U.S. Small Business Administration (SBA) breaks down common market considerations as follows:

• Demand : Is there a need for this product or service?
• Market size : How many people might be interested?
• Economic indicators : What are the income, employment rate, and spending habits of potential customers?
• Location : Are the target market and business well situated for each other?
• Competition : What is the market saturation ? Who and how many are you going up against?
• Pricing : What might a customer be willing to pay?

Market research should also include an analysis of market opportunities, barriers to market entry, and industry trends, as well as the competition’s strengths, weaknesses, and market share .

There are various methods for conducting market research, and these will vary depending on the nature of the industry and potential business. Data can come from a variety of places, including statistical agencies, economic and financial institutions, and industry sources, as well as direct consumer research through focus groups, interviews, surveys, and questionnaires.

A comprehensive business plan is like a blueprint. It lays the foundation for business development and affects decision-making, day-to-day operations, and growth. Potential investors or partners may want to review and assess it in advance of agreeing to work together. Financial institutions often request business plans as part of an application for a loan or other forms of capital. 

Business plans will differ according to the needs and nature of the company and should only include what makes sense for the business in question. As such, they can vary in length and structure. They can generally be divided into two formats: traditional and lean start-up. The latter is less common and more useful for simple businesses or those that expect to rework their traditional business plan frequently. It provides a vivid snapshot of the company through a small number of elements.

The process of funding a business depends on its needs and the vision and financial situation of its owner.  The first step is to calculate the start-up costs . Identify a list of expenses and put a dollar amount to each of them through research and requesting quotes. The SBA has a start-up costs calculator for small businesses that includes common types of business expenses.  

The next step is to determine how to get the money. Common methods include:

• Self-funding , also known as “ bootstrapping ”
• Finding investors willing to contribute to your venture capital
• Raising money online by crowdfunding
• Securing a business loan from a bank, an online lender, or a credit union
• Winning a business grant from a donor, usually a government, foundation, charity, or corporation

Different methods suit different businesses, and it’s important to consider the obligations associated with any avenue of funding. For example, investors generally want a degree of control for their money, while self-funding puts business owners fully in charge. Of course, investors also mitigate risk; self-funding does not.

Availability is another consideration. Loans are easier to get than grants, which don’t have to be paid back. Additionally, the federal government doesn’t provide grants for the purposes of starting or growing a business, although private organizations may. However, the SBA does guarantee several categories of loans , accessing capital that may not be available through traditional lenders. No matter the funding method(s), it’s essential to detail how the money will be used and lay out a future financial plan for the business, including sales projections and loan repayments . 

Businesses operating in the U.S. are legally subject to regulations at the local, county, state, and federal level involving taxation, business IDs, registrations, and permits.

Choosing a Business Location

Where a business operates will dictate such things as taxes, zoning laws (for brick-and-mortar locations), licenses, and permits. Other considerations when choosing a location might include:

• Human factors : These include target audience and the preferences of business owners and partners regarding convenience, knowledge of the area, and commuting distance.
• Regulations : Government at every level will assert its authority.
• Regionally specific expenses : Examples are average salaries (including required minimum wages), property or rental prices, insurance rates, utilities, and government fees and licensing.
• The tax and financial environment : Tax types include income, sales, corporate, and property, as well as tax credits; available investment incentives and loan programs may also be geographically determined.

Picking a Business Structure

The structure of a business should reflect the desired number of owners, liability characteristics, and tax status. Because these have legal and tax compliance implications , it’s important to understand them fully. If necessary, consult a business counselor, a lawyer, and/or an accountant.

Common business structures include:

• Sole proprietorship : A sole proprietorship is an unincorporated business that has just one owner, who pays personal income tax on its profits.
• Partnership : Partnership options include a limited partnership (LP) and a limited liability partnership (LLP) .
• Limited liability company (LLC) : An LLC protects its owners from personal responsibility for the company’s debts and liabilities.
• Corporation : The different types of corporations include C corp , S corp , B corp , closed corporation , and nonprofit .

Getting a Tax ID Number

A tax ID number is the equivalent of a Social Security number for a business. Whether or not a state and/or federal tax ID number is required will depend on the nature of the business and the location in which it’s registered.

A federal tax ID, also known as an employer identification number (EIN) , is required if a business:

• Operates as a corporation or partnership
• Pays federal taxes
• Has employees
• Files employment, excise, alcohol, tobacco, or firearms tax returns
• Has a Keogh plan
• Withholds taxes on non-wage income to nonresident aliens
• Is involved with certain types of organizations, including trusts, estates, real estate mortgage investment conduits, nonprofits, farmers’ cooperatives, and plan administrators

An EIN can also be useful if you want to open a business bank account, offer an employer-sponsored retirement plan, or apply for federal business licenses and permits. You can get one online from the Internal Revenue Service (IRS) . State websites will do the same for a state tax ID.

Registering a Business

How you register a business will depend on its location, nature, size, and business structure.  For example, a small business may not require any steps beyond registering its business name with local and state governments, and business owners whose business name is their own legal name might not need to register at all.

That said, registration can provide personal liability protection, tax-exempt status, and trademark protection, so it can be beneficial even if it’s not strictly required. Overall registration requirements, costs, and documentation will vary depending on the governing jurisdictions and business structure.  

Most LLCs, corporations, partnerships, and nonprofits are required to register at the state level and will need a registered agent to file on their behalf. Determining which state to register with can depend on factors such as:

• Whether the business has a physical presence in the state
• If the business often conducts in-person client meetings in the state
• If a large portion of business revenue comes from the state
• Whether the business has employees working in the state

If a business operates in more than one state, it may need to file for foreign qualification in other states in which it conducts business. In this case the business would register in the state in which it was formed (this would be considered the domestic state) and file for foreign qualification in any additional states.

Obtaining Permits

Filing for the applicable government licenses and permits will depend on the industry and nature of the business and might include submitting an application to a federal agency, state, county, and/or city. The SBA lists federally regulated business activities alongside the corresponding license-issuing agency, while state, county, and city regulations can be found on the official government websites for each region.

Every business should have a marketing plan that outlines an overall strategy and the day-to-day tactics used to execute it. A successful marketing plan will lay out tactics for how to connect with customers and convince them to buy what the company is selling. 

Marketing plans will vary according to the specifics of the industry, target market, and business, but they should aim to include descriptions of and strategies for the following:

• A target customer : Including market size, demographics, traits, and relevant trends
• Value propositions or business differentiators : An overview of the company’s competitive advantage with regard to employees, certifications, and offerings
• A sales and marketing plan : Including methods, channels, and a customer’s journey through interacting with the business
• Goals : Should cover different aspects of the marketing and sales strategy, such as social media follower growth, public relations opportunities, and sales targets
• An execution plan : Should detail tactics and break down higher-level goals into specific actions
• A budget : Detailing how much different marketing projects and activities will cost

How Much Does It Cost to Start a Business?

Business start-up costs will vary depending on the industry, business activity, and product or service offered. Home-based online businesses will usually cost less than those that require an office setting to meet with customers. The estimated cost can be calculated by first identifying a list of expenses and then researching and requesting quotes for each one. Use the SBA’s start-up costs calculator for common types of expenses associated with starting a small business.

What Should I Do Before Starting a Business?

Entrepreneurs seeking to start their own business should fully research and understand all the legal and funding considerations involved, conduct market research, and create marketing and business plans. They will also need to secure any necessary permits, licenses, funding, and business bank accounts.

What Types of Funding Are Available to Start a Business?

Start-up capital can come in the form of loans, grants, crowdfunding, venture capital, or self-funding. Note that the federal government does not provide grant funding for the purposes of starting a business, although some private sources do.

Do You Need to Write a Business Plan?

Business plans are comprehensive documents that lay out the most important information about a business. They reference its growth, development, and decision-making processes, and financial institutions and potential investors and partners generally request to review them in advance of agreeing to provide funding or to collaborate.

Starting a business is no easy feat, but research and preparation can help smooth the way. Having a firm understanding of your target market, competition, industry, goals, company structure, funding requirements, legal regulations, and marketing strategy, as well as conducting research and consulting experts where necessary, are all things that entrepreneurs can do to set themselves up for success.

U.S. Small Business Administration. “ Market Research and Competitive Analysis .”

U.S. Small Business Administration. “ Write Your Business Plan .”

U.S. Small Business Administration. " Calculate Your Startup Costs ."

U.S. Small Business Administration. “ Fund Your Business .”

U.S. Small Business Administration. “ Grants .”

U.S. Small Business Administration. “ Loans .”

U.S. Small Business Administration. “ Pick Your Business Location .”

U.S. Small Business Administration. “ Choose a Business Structure .”

Internal Revenue Service. “ Do You Need an EIN? ”

U.S. Small Business Administration. “ Get Federal and State Tax ID Numbers .”

U.S. Small Business Administration. “ Register Your Business .”

U.S. Small Business Administration. “ Apply for Licenses and Permits .”

U.S. Small Business Administration. “ Marketing and Sales .”

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General Election 2024: What are the key Labour and Conservative manifesto policies?

Rishi sunak has called a snap general election for july, article bookmarked.

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After a day of fervent speculation, Rishi Sunak has finally called a snap general election on July 4 .

Mr Sunak confirmed the news in a speech outside No 10. Almost upstaged by the rain – and pranksters loudly playing D:Ream’s ‘Things Can Only Get Better’, closely associated with Tony Blair’s 1997 Labour victory – the prime minister reminisced on his time in office, before making the big announcement.

Before now, the prime minister had resisted calls to go to the polls, despite constant pressure from the Labour Party to do so over the past year.

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However, it is speculated that Mr Sunak had been waiting for an opportune time to make his move. Bolstered by the positive downturn in inflation to 3.2 per cent, it appears his mark has been met.

Taking a swipe at the Labour Party, the prime minister said:

“I don’t know what they offer”, adding “they have no plan, there is no bold action, and as a result the future can only be uncertain”.

Responding to the news, Labour leader Keir Starmer released a video saying “it’s time for change”.

“They have failed. Give the Tories five more years, and things will only get worse,” he said.

While neither party has released an official election manifesto yet, as they will only come after an election is officially called, both have dropped hints and promises over the course of the past few years, which offer a clue for their vision for the country.

Here’s where the UK’s two largest parties stand on some of the key issues:

Economic policies have been a focal point of Mr Sunak’s premiership, making up three of the Conservatives’ five key priorities . They are: reduce inflation, grow the economy, and reduce national debt.

The first of these aims has largely been achieved, with inflation falling since the pledge was made, from 10.1 per cent to 2.3 per cent, although it is still above the Bank of England’s target of 2 per cent.

However, the respected IFS economic think tank has questioned Mr Sunak’s taking credit for the economic good fortune, with director Paul Johnson arguing that it is the Bank of England’s job to cut inflation and that the prime minister’s pledge was always “inappropriate”.

The economy has shown signs of growth since Mr Sunak’s pledges were made, with the economy forecast to have grown 0.5 per cent in 2023, and wages rising steadily. However, debt has risen to 89.9 per cent of GDP, up from 85.1 per cent in late 2023, when the prime minister promised to reduce it.

Labour has been critical of the government’s economic record, with shadow chancellor Rachel Reeves promising to take an approach of ‘securonomics’ as an antidote to the economic turmoil caused by Liz Truss’s catastrophic 2022 ‘mini-budget’.

Outlining Labour’s ‘first steps for change’ in May, Keir Starmer said the party would impose strict rules on themselves.

Mr Starmer also says the party would introduce an ‘Office for Value for Money’ to ensure taxpayers’ money is spent wisely and halve government consultancy spending, instead focussing on long-term staffing.

Finally, the party says it would appoint a ‘Covid Corruption Commissioner’ to recoup billions in taxpayer money wasted on fraudulent Covid contracts, as well as ending what it calls the VIP ‘fast lane’ government contract procurement process.

Both parties have expressed reluctance to raise taxes.

Labour’s Rachel Reeves has confirmed the party would not seek to undo the government’s 2p cut to National Insurance tax if it came to power, looking to other measures to raise funds.

Chief amongst these measures is scrapping the controversial ‘non-dom’ tax status held by some wealthy foreign nationals in the UK, as well as a crackdown on tax avoidance, and introducing VAT and business rates to private schools.

In April Mr Sunak beat Labour to the punch on non-doms by announcing that the tax regime would be phased out over a transitional period. Labour has said they would scrap the transitional measures, saving a further £2.6 billion.

Conservative chancellor Jeremy Hunt has also indicated a desire to cut NICs even further, if he can “afford” to. This is despite a warning from the International Monetary Fund of a potential £30bn hole in the public finances, which the Treasury disputes.

Both Labour and the Conservatives have ruled out increasing income tax (or changing its bands), capital gains tax, or corporation tax.

NHS waiting times have skyrocketed over the past two years, with the number of people waiting for a hospital treatment hitting a record 7.8 million in late 2023, with around a third waiting over 6 months.

The proportion of people waiting over 4 hours in A&E has also increased, reaching a peak of over 50 per cent last Summer, and now at around 45 per cent.

Both parties have pledged to reduce these waiting times.

The Conservatives have pointed to the Covid pandemic as the driving force behind the increases, pledging to work hard to reduce them.

Mr Sunak has said his government will do this by introducing “record” funding, up 35 per cent since the start of the last parliament, as well as record staffing levels.

However, the IFS argues that, in real-terms, the increased spending amounts to no real growth in the NHS budget between 2023/24 and 2024/25.

The prime minister also plans to “reform” the NHS. This includes allowing people to receive prescriptions directly from pharmacies, improving health technology, and giving people the choice to be referred to the private sector.

Labour’s shadow health secretary Wes Streeting has said the party will get the NHS “back on its feet” by delivering 40,000 more evening and weekend appointments a week, funded by their economic policies.

However, Mr Streeting raised some eyebrows in April when he announced his intention to use “spare capacity in the private sector” to work towards Labour’s NHS goals, despite what “middle-class lefties” might think.

The shadow health secretary has since clarified that this does not mean Labour wishes to privatise the NHS in any way, and that he believes the health service should always be free for everyone.

Immigration

Immigration has been a key issue for both parties. The Conservative government has taken a hard stance on the issue, pledging to “stop the boats” and increase measures to deter immigrants and asylum seekers from heading to the UK. Mr Sunak announced last year his goal of reducing net migration from 606,000 in 2022 to 240,000 in 2024.

His 12-point plan includes measures such as capping the number of people claiming asylum in the UK, raising the minimum salary threshold for skilled workers, and cutting visas for care staff and students.

However, Mr Sunak has not yet delivered on his promise to reduce the number of people arriving into the UK via small boats, with a record number of migrants crossing the channel in the first three months of 2024 .

The government’s controversial and long-standing Rwanda bill is also likely to feature prominently in the run up to the general election. Despite approval by parliament in April, it is unlikely a flight will take off under the scheme until late June or July.

Labour’s plan on immigration similarly looks to reduce the UK’s reliance on overseas’ workers. It says it would implement policies that tackle “home-grown skills shortages” to fill key sectors facing employment gaps.

The opposition party says it would take inspiration from Australia’s points-based immigration system, which assesses a migrant workers’ suitability for a visa based on factors such as education, language skills, and work experience.

The Labour party has also pledged to secure the UK’s borders by introducing a Border Security Command, which would use counter-terror style tactics, as well as a Returns Unit to more efficiently removed asylum seekers with failed applications.

Environment

In 2019, the Conservatives under Theresa May committed to a net zero target of 2050. Rishi Sunak has said he remains committed to this goal.

The government’s current policies include a transition to electric vehicles by 2035, meaning no new petrol or diesel cars should be sold after that year, as well as encouraging households to transition from gas boilers to heat pumps.

However, the prime minister was criticised last year for pushing back the transition period for both of these measures, alongside announcing new oil and gas licences.

Labour has laid out its plans for ‘Great British Energy,’ a publicly-owned sustainable energy company, which it says will reduce household energy bills and create half a million jobs.

Shadow environment secretary Ed Milliband says the party would pay for the plan with a windfall tax on excess profits made by oil and gas companies.

Labour has made education a key part of its policy programme in its time as in opposition. Their headline measure is to recruit 6,500 new teachers in key subjects, as well as creating a ‘national excellence programme’ which would see teachers given continuous support with professional development.

The party has also said it will set out to review the national curriculum, giving it wider scope to improve creativity, and digital and communication skills, alongside more mental health support staff in schools.

Meanwhile, the Conservatives have promised a new qualification framework called the ‘Advanced British Standard’ for 16- to 18-year-olds. It will increase the number of A-Levels students study from the typical three to five, and ensure everyone will study “some form” of maths and English to age 18.

The Department for Education has said the rollout will take around a decade, pledging £600 million in the first two years, as well as a £30,000 bonus for for teachers in key shortage subjects, spread out over the first five years of their career.

The government has clashed with teacher’s unions during Mr Sunak’s tenure, seeing a number of teacher strikes organised over the course of 2023.

After accepting a pay offer last year, teachers’ unions are now looking to secure a further pay increase for September 2024. Education secretary Gillian Keegan was due to table a new pay offer soon, but this now looks unlikely and will probably fall to the next government.

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Spotify Is Officially Raising Prices on All Plans Except One — Here's When the Increase Goes Into Effect The price hikes are Spotify's second in a year after keeping individual subscriptions at $9.99 for over a decade, from its launch in the U.S. in 2011 to 2023.

By Sherin Shibu Edited by Melissa Malamut Jun 3, 2024

Key Takeaways

• Spotify will raise prices next month for paying customers on individual, duo, and family plans.
• Students get to keep their $5.99 per month membership.
• Of Spotify's 602 million global users, 236 million pay to use it, per a February earnings call.

Only students who pay a discounted monthly fee are exempt from Spotify's most recent price hikes.

Spotify officially confirmed on Monday that it is raising monthly subscription prices for almost all paying customers in the U.S. next month.

"So that we can continue to invest in and innovate on our product features and bring users the best experience, we occasionally update our prices," the company explained.

Individual plans are going up by about 10% in July, from $10.99 to $11.99, while Duo and Family plans will increase by $2 and $3 respectively to $16.99 and $19.99.

The premium student plan, which university students can enroll in for up to four years, will stay $5.99 monthly.

The price increases are Spotify's second within a year, after a jump from $9.99 to $10.99 for individual plans last July.

The music streaming giant kept individual subscriptions at $9.99 for over a decade , from its launch in the U.S. in 2011 to 2023.

Related: Is Spotify Increasing Prices? Streamer Hiking Premium Plans

Paying a subscription fee isn't required to use Spotify; the music streaming service also has a free tier with ads. Spotify recently removed unlimited access to lyrics for free users, further drawing the line between free and premium subscriptions.

Spotify competitor Apple Music has similar prices for students ($5.99) but has not raised individual or family plan prices from $10.99 and $16.99 respectively — which currently makes either plan cheaper than its Spotify equivalent.

Spotify's most recent February earnings show that 236 million of its 602 million users pay to use the music streamer.

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Cracker Barrel CEO says brand isn't relevant and needs a new plan. Here are 3 changes coming soon.

By Aimee Picchi

Edited By Anne Marie Lee

May 24, 2024 / 3:01 PM EDT / CBS News

Cracker Barrel has long been known for its combination of rustic charm and country dishes like biscuits and gravy. But its new CEO said that the old approach isn't working any longer — and she's planning some major changes. 

"We're just not as relevant as we once were," Cracker Barrel CEO Julie Felss Masino said on a May 16 conference call to discuss her plans to update the restaurants. 

Masino, a former Taco Bell executive who stepped into the role of Cracker Barrel CEO in August, said the company "has lost some of its shine" and needs a "transformation" to continue to appeal to its current customer base and draw new diners. Cracker Barrel's sales have flatlined, with revenue for its most recent quarter unchanged at $935.4 compared with a year earlier, while its stock has tumbled 40% so far in 2024. 

Its challenges range the gamut from prices to menu options, she added, citing a recent in-house study that compares Cracker Barrel with its competitors, based on food, experience, value and convenience. To be sure, Cracker Barrel isn't alone in struggling to keep customers coming back, as other food chains have recently reported problems with convincing inflation-weary consumers to return. But the company notes other concerns.

"[W]e are not leading in any area," Masino said. "[T]he reality is we've lost some market share, especially at dinner."

The company is now planning to make several changes to help refresh the brand and bring back its customers.

Here are three changes Masino said could soon be rolled out to all or many of Cracker Barrel's 660 locations. 

Green chili cornbread

To make itself "more relevant to guests," Masino said, the chain has been experimenting with new menu items.

In more than 10 locations, Cracker Barrel has tested 20 new items, including green chili cornbread and banana pudding, she noted. 

Based on customer feedback, Cracker Barrel plans to roll out several new dishes to all its restaurants this fall. They include: 

• Premium savory chicken and rice
• Slow-braised pot roast
• Hashbrown casserole shepherd's pie

Tweaking prices 

The chain also plans to tweak its pricing tiers, with Masino noting that prices at about 60% of its restaurants are in its lowest cost tier. But she suggested that some restaurants could be charging more. 

"For example, we have stores in metro areas with an average annual household income of $55,000 in the same pricing tier as one with $90,000," she told investors on the call. 

In some cases, however, menu prices could be trimmed, Masino added.

"I want to emphasize that optimizing our price points across the menu doesn't mean just increasing prices," she said. "In several places, it may actually mean taking the opposite approach. We understand the lower-end consumer is challenged and value is and will remain an important part of the brand and we will work vigorously to protect it."

Noticeably different, but still Cracker Barrel

The chain is piloting a remodel of its restaurants, which Masino said involves using "a different color palette, updating lighting, offering more comfortable seating and simplifying decor and fixtures."

"The goal, simply put, was to freshen things in such a way as to be noticeable and attractive but still feel like Cracker Barrel," she said, adding that customer feedback has been positive. 

Cracker Barrel plans to remodel as many 30 stores in its next fiscal year, she added. 

On top of that, the chain is planning on debuting some new locations in fall 2025 that are about 15% smaller than its current restaurant footprint, Masino noted.

"Historically, Cracker Barrel has made limited changes to our design aesthetic, and we've probably relied a little too much on what was perceived to be the timeless nature of our concept," she said.

• Cracker Barrel
• Consumer News
• Food & Drink

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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Spotify Raises US Prices of Its Premium Plans in Margin Push

A screen displays the logo and trading information for Spotify on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 6, 2024. REUTERS/Brendan McDermid/File Photo

(Reuters) -Spotify raised prices for its premium plans in the United States on Monday, the latest step by the Swedish music-streaming service in its push to increase margins.

The company raised prices of its individual plan to $11.99 from $10.99 per month, duo plan to $16.99 from $14.99 and its family plan to $19.99 from $16.99 in its largest market by revenue.

Spotify has been trying to boost its margins in recent months by lowering marketing spending and through layoffs, after relying on promotions and hefty investments to drive user growth.

Shares of the company, which competes with services from Apple and Amazon.com, rose more than 4% in morning trading.

"We're increasing the price of Premium Individual so that we can continue to invest in and innovate on our product offerings and features," Spotify said in an email, which it plans to send to its subscribers in the U.S. over the next month.

Spotify's revenue in the United States grew nearly 11% to 5.23 billion euros ($5.69 billion) in 2023, according to its annual report.

The company offers an advertising-supported free service with limited features and a subscription-based paid service that gives access to all its functionality, with premium subscribers accounting for most of its revenue.

Analysts expect the streaming giant could drive further growth by offering tailored subscription plans based on consumer preferences in verticals such as music, audiobooks and podcasts.

The company's quarterly gross profit topped 1 billion euros ($1.09 billion) for the first time in April after it reined in marketing spending.

Its premium subscribers rose by 14% to 239 million and it forecast monthly active users at 631 million for the second quarter.

($1 = 0.9192 euros)

(Reporting by Jaspreet Singh in Bengaluru; Editing by Saumyadeb Chakrabarty and Arun Koyyur)

Copyright 2024 Thomson Reuters .

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Reporting by Hadeel Al Sayegh, Maha El Dahan, Yousef Saba and Federico Maccioni; Writing by Yousef Saba; Editing by Bernadette Baum, Jan Harvey, Anousha Sakoui and David Gregorio

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Maha has been working as a Reuters journalist for over 15 years covering stories across the Middle East from Egypt, the Gulf, Yemen, Iraq, Syria, Lebanon and Jordan. She is currently Gulf Bureau Chief based in Dubai and continues to cover energy and OPEC policy. In her previous roles, Maha has overseen Lebanon, Syria and Jordan coverage as Bureau Chief based in Beirut and managed the energy and commodities file across the Middle East. Maha began her career with Reuters in Cairo.

Yousef covers Middle East energy out of Dubai, paying close attention to Gulf state oil giants, their roles in the ambitious region's transformational plans and the shift to green energy. He previously covered Gulf financial and economic news, with a focus on the fast-growing capital markets there. He joined Reuters in 2018 in Cairo, where he covered Egypt and Sudan, including its uprising. He previously had stints at a local paper in Cairo and in D.C. as an intern at Politico during the 2016 U.S. presidential election.

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