Capital raising services are one of the best ways to raise capital for your business. In today’s climate, it can be hard for entrepreneurs to get funding from venture capitalists, angel investors and banks.
However, that doesn’t mean there aren’t alternative sources of capital available to you as an entrepreneur. Capital raising is where you sell equity or other financial instruments in order to fund your business ventures.
Essentially, this means selling shares of your company to investors in exchange for their money or shares in your company. That money can then be used for operational costs and development of new projects or businesses.
If you’re a small business without access to traditional funding sources, capital raising services might be right for you! Read on to learn more about this alternative source of capital, how much it’s worth and why it works so well for startups.
What is Capital Raising?
Capital raising is the process of selling shares of your company to investors. The company will issue shares and sell them to the public. When you’re starting a business, you need funding to make your ideas a reality.
In this article, we explain step by step how VC funds work and why you should consider them.
However, obtaining traditional funding is difficult for small businesses—VC investors are looking for huge returns, banks are risk-averse, and angels have enough competition to be tough to find.
That means that most entrepreneurs rely on government programs and alternative sources of capital. You can apply for grants (which often require a lot of paperwork and are often less profitable), borrow money from family or friends (as long as they’re okay with writing you a huge check for it), or try to raise money from private investors.
One of the most common forms of funding for businesses is raising equity capital, which is when you sell shares of your company to investors. These shares are priced between $10 and $20 dollars per share, so you’re paying between $100 and $200 to get in on your company.
In order to decide which alternative is suitable for your startup, there are fundraising consultants that can help through capital raising services. In another article, we explain whether and how you should approach fundraising consultants.
Here we explain further the raising capital services provided by these and other experts and whether such services are useful for your startup or not.
The Pros of Raising Capital From a Service Provider
The following are the main pros of capital raising services by top providers:
- Flexibility: If you’re looking for a long-term source of funding, traditional funding sources aren’t flexible enough. You’ll have to wait until the right time to apply or apply at the wrong time. That can be a risk as you try to grow your business. A raising capital service provider is flexible and can work with your needs and timeline.
- No equity attached: One of the biggest benefits of capital raising services are that you don’t tie up any equity in your company. With a funding round, you may have to give up a portion of your company to investors. With a service provider, you don’t necessarily give up any equity. Instead, you might need to pay fees or share revenue with such service providers.
- Low cost: Capital raising is expensive. You’ll spend money on marketing, legal fees and other costs. That’s why most entrepreneurs choose to fundraise through equity sales. This can be costly, and it’s not for everyone. A service provider allows you to raise money without all the hassle and mainly charge you once you have been funded.
- No dilution: Another benefit of raising capital is that there’s no risk of dilution. When you sell equity, there’s a risk that the price will fall and you’ll have to give more to the investors. If you raise money this way, you don’t have to worry about dilution.
How Much Do Capital Raising Services Typically Cost?
The size of your round will determine the cost of the service. Some companies will use an up-front fee, where you’ll pay a certain amount of money up front to raise a certain amount of money.
Other companies will do a discount-based model. With a discount-based model, they take a percentage of the money raised. Typically, equity services charge a flat rate or a percentage of the round. These rates will depend on the size of the round you’re raising.
While the amount you raise may depend on various factors, like your company’s value and the terms of your agreement, the cost of capital raising services is generally around 8%. This means that you’ll pay a percentage fee of the amount you raise, typically between 1% and 6%.
This fee covers the legal and accounting costs of raising funds, which are typically very high. Keep in mind that the more money you raise, the lower these costs will be.
The Cons of Using a Service Provider
The following are the main cons of capital raising services by top providers:
- You can lose control: When you give up equity in your company to investors, you lose a little bit of control. You won’t have as much power or influence in your company as you do now. That’s why some entrepreneurs aren’t comfortable taking money from investors and hence not working with capital raising services.
- It’s a long process: Launching a new business is exciting. The reality is that it’s a long and challenging process to secure funding. It can take years from inception to profitable growth. Funding your business through equity sales is a long-term process. That’s why many entrepreneurs choose to go the debt route.
- Risk of losing money: The risk with raising capital is that you may not get the full amount of money you’re seeking despite spending on capital raising services by fundraising experts. It’s possible that your business isn’t viable or is worth a lot less than you think. That’s why it’s important to do your research and make sure you’re seeking the right amount of money.
- Issues with the fundraising expert: It could be that you have differing opinions about whom you should go to and how much your startup is worth. Founders are biased about their startup and having a second opinion, provided that you are coachable, always helps.
How to Select the Right Capital Raising Services Provider
There are many different equity investment services out there. That’s why it can be hard to choose the right one for you depending on your stage of fundraising.
There are a few things you should look for to find the best service for you.
- Experience: The first thing to look for is experience. It’s important to choose a company with a lot of experience and success raising capital. That way, you know you can rely on them for support and help as your business grows.
- Track Record: Another thing to look for is track record and how often they’ve been able to fund companies. That way, you know they have a good track record and understand the business model.
- Support: Last but not least, look at their support. Does the company have helpful support systems in place to answer your questions? Does their support team respond quickly and help solve any issues you have? You may need urgent help sometimes since VCs will put pressure on you to get their answers.
Final Words
If you’re reading this guide, it’s likely that you know that raising capital is a critical part of starting a business. However, it can be tricky navigating the complicated world of equity investors and venture capitalists.
When you’re starting a business, it can be difficult to find the funding you need. That’s why it’s important to consider alternative sources of funding like capital raising services. They’re a great way to get the money you need without all the risks and costs associated with debt financing.
