With any entrepreneur, no matter where they are in the world, action is what separates them from any other kind of individual with a plan. So whether it's some kind of side-hustle that you, as its founder, have been doing for a number of years, or if this is a brand new idea you're trying to take from blueprint to reality, there's one thing that you'll need - Money and the types of capital raising .
For those that aren't: as the name suggests, Capital Raising is the process of securing investment capital through one or multiple avenues of investment, but it gets to be a little more complicated than just asking for money. And it's something that can become all the more complicated or holistic depending on where you are in your business' life cycle.
When a company wants to obtain some kind of Capital investment, these methods are split between either debt or equity-based capital raising. We'll take the time to break down the differences right here:
Much as the name suggests, this is the infusion of new capital under the pretext that investors are buying in for longer-term profitability without being directly paid back by the company.
This method of capital raising is the preferred choice for major corporations, along with some startups, due to the associated challenges of Debt Financing/capital raising.
This is the most common practice for companies that are looking to raise capital for either their business in general or for a specific project that the company is looking to get started with.
These publically traded shares can be bought by investors and provides value to the investor thanks to the annual return on investment they can expect to receive through the success of the business.
The name gives the impression that this kind of investment comes from an altruistic individual or company interested in the project. Which isn't too far from the truth; Angel Investors provide capital in exchange for equity in your business.
This form of capital raising is more common for small-scale businesses or startups. Venture Capital operates in a similar fashion, except that VC's will likely be more inclined to provide more capital, but expect a [sometimes much] higher return on investment.
While more common with smaller companies and startups, Equity Crowdfunding is becoming an increasingly popular method of investment should companies not be big enough to issues shares and prove unable to win over investors.
Much like crowdfunding platforms like Kickstarter, this is effectively when a company puts itself forward to a specific or broad community to invest in their project, which can include those companies that are, as yet, unlisted.
Unlike Equity funding, which relies on investment through the issuance of stocks and the provision of capital under the condition of returns on investment.
Debt financing is literally a debt incurred by a company in order to pay for further expansion or a project, under the condition that that same company repays the debt and any interest that they incur.
While this places added pressure on your business to turn a profit and repay the debt, the advantage is that you're not handing out equity shares in your company, such as selling off voting shares.
Debt financing as a means of capital raising also means that this same debt is wholly tax deductible too.
A bank loan is one of the avenues used by smaller companies, and depending on the bank that you're approaching, and just what kind of loan it is that you have your eye on, this can have a big impact on how to approach repayment in the future.
For example, these loans can involve long or short-term financing, which comes with various interest rate re-payments that are either fixed or adjustable over time.
Problem is that, depending on the interest rates attached, companies can often struggle to grow, while the chief executive of the business can find themselves personally responsible for repayments.
These are just some of the methods that you can obtain capital for your growing business. And just applying either Equity or Debt financing may not be in your companies best interests. But it's worth considering all the options available to you.