Whether you want to create your company, launch a project or ensure its development, the solution of raising funds consists of a capital financing operation, the advantages of which seduce many start-ups. In a very competitive context of today, how can you raise funds efficiently in 5 steps?
Step 1: Understand what fundraising is
Fundraising is a financing operation that consists of finding investors who agree to become shareholders of the company in exchange for the purchase of shares in the company. It is an excellent solution to have access to large amounts of funds in order to launch a product, to develop its offers or services, or to simply ensure the further development of the start-up in exchange for the transfer of several shares.
Nevertheless, fundraising has one important drawback: entrepreneurs who benefit from it accept to lose rights in their company to their shareholders. Moreover, for investors, participating in a fundraising represents a risk: the shareholder bets on the potential future capital gain from the resale of their shares. This is why it is important to know how to positively influence the valuation to benefit from an efficient fundraising.
There are several types of fundraising campaigns: the seed fundraising or the investment fundraising. The former consists in financing the development of a project, the creation of a new product or the beginnings of a start-up. The second, with generally much larger amounts, aims to ensure the development of a company that is already valued on its market by increasing its capital through the sale of shares.
Thus, successfully raising funds can be a complex operation and very few digital and tech companies benefit from it. To succeed, they take advice from experts to know how to raise funds, create a business plan or increase their contacts.
Step 2: Prepare your fundraising case
Raising funds is a time-consuming operation that can sometimes take between six months and a year. Therefore, it should only be done as a last resort and after having looked at other financing possibilities with banks or institutional organizations.
Preparing one's operation first of all requires to clearly define the technical characteristics of one's project or of the creation of one's company. It is necessary to clearly define the amount to ask for, the share of the capital corresponding to an investment, to build a financing plan, etc.
To understand how to raise funds and to reach such a clear and objective vision of your project, you must use qualified tools and continuously update your business metrics, your balance sheet and your turnover forecasts. Furthermore, it is important to choose the right launch date for your fundraising in order to stand out from the competition, to be visible on the various markets, to be better financed and to arouse the curiosity of the right investors at the right time.
Step 3: Promote your company
When raising funds, what will convince the investors is the potential for capital gains from the resale of their shares. This step requires the production of an attractive business plan that shows how you intend to finance the entire project. It is generally during this phase of valuation that one determines the premium that the investors must pay to enter the capitalization table of the company which they support.
In order to obtain partners, it is necessary to be able to considerably showcase and visualize your project, your product and your company. For a company that has been in existence for several years, its sales history or its customer portfolio can demonstrate its activities and highlight its potential to the right investor. It is for start-ups that this phase is more complex: their history is almost non-existent and it is difficult for them to identify value indicators that will attract investors.
To find out how to raise funds, young tech entrepreneurs who are having difficulty launching their financing operation can turn to Silvr's teams, which will accompany them through funding all the stages of their project. Our loans are based on the revenue-based financing method. Our process consists of evaluating a company's metrics via algorithmic software that analyzes real-time data. An excellent alternative to fundraising, our loans offer great flexibility and access to our experts' advice. Eligible companies receive the funds within 48 hours and can adjust their repayment schedule by choosing either a fixed or revenue-based model. In the latter case, the companies are not required to make monthly payments, but only pay back their loan in the months when they have actually made a profit.
Step 4: Identify, prospect and pitch investors
Before contacting them, it is important to identify good investors who are active in the company's market and vertical. The important thing is to target your contacts well, and to pursue only those who could be potential shareholders. It is often the founder of the start-up who is in charge of this research stage. In his research, he can also call upon the services of business angels who can help with valuable introductions, or invest some capital themselves.
To better identify investors, it is important to determine your values and ambitions in order to meet the individuals with whom they coincide. As a rule, it is at this stage that start-ups turn to investment fund experts or business angels who have made this their specialty. These professionals can also provide advice to start-ups on how to raise funds for their business.
Step 5: Determine the legal aspects
Fundraising is part of a structured legal framework and is subject to a contract. First of all, a shareholders' agreement must be drafted, which will contain a governance section, which determines the relations between the shareholders and the founder. This document will summarize the organization of the company's management and the sharing of rights between the shareholders with respect to strategic decision-making.
In addition, a letter of intent should be drafted that defines the future relationship between the company's managers and its shareholders. This letter of intent will mention the shares per investor, describe the investment fund, the company, the destination of the funds and the reasons why the investors are participating in the financing round. To stabilize and secure the relationship between the company and its shareholders, it is important to add official documents and clauses to the shareholders' agreement: inalienability of the right of pre-emption or approval procedure for example.
It is at this legal stage that the exit right of the investment fund is foreseen and legally anticipated. Some investors may refuse to launch a project if the first investment fund has not exited the company - or if there aren’t enough total investors agreeing to be a part of the funding round. To anticipate the exit of the fund, a liquidity clause and a forced exit clause should be put in place, if necessary.
Finally, be aware that raising funds entails a change in the company's articles of association, which must be duly registered by the manager with the clerk of the commercial court.
