Why do companies need to raise capital?
As an entrepreneur, you face many challenges. But, none are as big as finding money to start your new business.
Capital is crucial at the start of a company’s life, as it enables the business to turn its ideas into reality. The seed capital may be used to hire key staff, purchase inventory, or market the company and its ideas. All of these things require cash and this is the reason companies raise investment.
Why Raising Capital is important ?
It is believed that a business is almost impossible to start without money. Yet, ironically enough, you cannot get money until your business is successful enough. … Therefore, raising funds through other sources is important in order to finance all the business activities.
1. Bootstrap your business
Bootstrapping describes a situation in which an entrepreneur starts a company with little capital, relying on money other than outside investments. An individual is said to be bootstrapping when they attempt to found and build a company from personal finances or the operating revenues of the new company.
Bootstrapping allows business owners to experiment more with their brand, as there is no pressure from investors to get the product right the first time.
2. Launch a crowdfunding campaign
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture.
Imagine you want to promote a project that requires one million dollars. You could think about asking your millionaire friends or your local bank for a loan, but what if instead there were one million people that wanted to support your project, and they would each give you one dollar in exchange for a thank-you note? Now imagine you could ask those million people about what they think about your project, to give you feedback for improvements or changes, and at the same time, they would each tell three friends about your project, expanding your reach exponentially. This is how crowdfunding works.
7 Best Crowdfunding Sites For Small Business
- Crowd Supply.
3. Raise Capital from Angel Investors
Angel investors stand out from other types of funding options because they are always on the lookout for the next business to invest in. Many of the biggest tech companies today, including Google and Yahoo, were funded by angel investors.
The typical angel investor is a high-net-worth individual who has an interest in helping new companies expand. These accredited investors provide startups with seed money in exchange for an equity stake in the company. The idea here is that once the company becomes profitable, the angel investor can sell their shares for a profit.
Angel investing is a good option for startups to raise large amounts of capital without being constrained by the requirements that go along with taking out a loan. The main disadvantage, however, is the fact that it requires trading off a certain amount of ownership in the company.
4. Get Venture Capital For Your Business
Venture capital is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth.
It is a widely held belief that VC firms tend to invest in what they find to be great people and great ideas. But in practice it all comes down to VC firms investing in great industries which do well irrespective of existing competition and the current market.
The primary advantage of venture capital financing is an ability for company expansion that would not be possible through bank loans or other methods. This is essential for start-ups with limited operating histories and high upfront costs
5. Raise Capital through Bank Loan
A company looking to raise capital through debt may need to approach a bank for a loan, where the bank becomes the lender and the company becomes the debtor. In exchange for the loan, the bank charges interest, which the company will note, along with the loan, on its balance sheet.
Instead of doing transactions in cash, you can just let your bank do it for you. One can borrow money from the bank in the form of personal loans, home loans or other loans for business purposes. Banks raise capital by charging interest on these loans. The interest charged by the bank is according to the risk involved.
6. Raise capital by asking friends and family
Starting a business is a huge financial responsibility. When you’re just starting up, you’ll need some cash in your pocket to get the ball rolling. And the first people you might turn to for support are your friends and family.
Whilst banks may require you to secure a loan on your property, it’s unlikely friends or family will ask you to do so. This reduces your personal liability and helps ensure that, should the business fail, you retain your property. This is a particularly attractive benefit for most entrepreneurs who may have a family to take care of.