Generating more cash for your business is always an enticing prospect. As you're getting your business off the ground or helping it gain market share, more funding can help you get over the hump. While a cash injection may be the answer, it can cost a lot of money to raise capital.
It is easy to take for granted how much time, effort, and funding it takes to get investors to deposit cash into your business account. Cash can be critical whether you are a brand new startup or a company with experience looking to grow. How you go about raising funds is a piece of the puzzle you shouldn't ignore.
Why Raising Capital Costs Money?
Why does it cost so much money to raise capital? Someone who didn't know any better would think that it's simple: you find an investor, they agree to a deal and deposit funds into your account, and you then take these funds and do what is necessary to help grow your business. The reality is there is much more to raising funds than just agreeing to a deal.
Time is Money
While not a direct cash outlay, time is money in the business world. A startup, during the cycle in which they are raising funds, may devote half their time just trying to find new ways to infuse capital into the business. Founders of startups might think they are doing the right thing in their hunt for capital when in reality they cost their startup resources necessary to help it grow.
Investors will take their time in scoping out a potential startup. It may take upwards of a full year to get an investor to agree to a deal. As the leader of a business, how much could you accomplish with half of your time over a year, with a focus solely on growing the business?
Out of Pocket Costs
There are also a lot of out-of-pocket costs that go along with the raising of capital. You may have a successful search for an investor. Now that you have your investor-ready, you need to take the next step. There will be costs in terms of legal fees, accounting fees, and more. If you decide to take your startup public, then you run into compliance with the Securities and Exchange Commission (SEC) as well as other requirements which can eat into the capital you gain even further.
The Process Involves Many Parties
It is a combination of time and money when you think about a traditional capital raise process. You start with data that is one-to-one, with you passing information over to a potential investor. From there, you weigh the suitability of that investor in a manual fashion. You then build out a spreadsheet with the allocation for the investor, before moving on to closing. All these steps require immense resources, inclusive of costs as well as time.
Different Methods of Raising Capital
You have options when it comes to raising capital for your business. You can raise capital from a variety of different sources. Starting with the most simple and moving forward in complexity, these arrangements execute via traditional and digital methods, each of which we will get into in more detail below.
Investments from Friends and Family
As a business, one of the easiest things you can do when it comes to seeking funding is to get it from friends and family. You may have friends and family that have money and are willing to invest in your business. When you start a business, without much of a track record, this may be the easiest way to get an influx of cash to start rolling down the runway.
The benefit to friends and family investments is that it's typically pretty informal as it’s smaller in dollar amounts. You can usually get a loan set up as a gift or a low-interest arrangement. Another alternative is to grant an equity stake in the business.
The other option for a startup is to look at angel investors, inclusive of one individual or a network of angels. These investors will require either an equity stake in your business or a convertible debt amount. Identification of angel investors is critical as they will be hands-on when it comes to your business. If they invest, they do so as they believe in what you can deliver in the market.
Venture Capital Investments
Venture capital funds are the next level and typically are an option you seek out when your business is ready to scale. A venture capital firm needs identification to be a good fit for your business. The venture capital investor will also recognize your business as one which can bring mainstream and help to deliver double-digit returns.
The Most Affordable Capital Raising Solution
Every startup is looking for the most affordable way to raise capital. Thankfully, there is now a market to automate much more of the process for capital raise than ever before. It's less and less a choice between a digital solution or a traditional paper-based option. Now, you are scouring the market to determine which software solution can make the process most seamless, connect you with investors, and handle the process from start to finish.
Automation of Connecting With a Network of Investors
Figure Equity Solutions automates the connection between what you can offer to investors, and who is a good match for your investment opportunity. You spend a lot of time gathering up data on your startup which then becomes your pitch to substantiate why you make for a good investment. There are many ways to distribute data on your startup electronically, but the Figure Equity Solutions software solution lets you publish it to a network of ready-made investors.
Speaking of investors, you also want an easy way to connect your offering with their capital. Investors on the Figure Equity Solutions platform need to prove worthiness. Investors will submit their appropriate accreditation so you can substantiate their validity before moving forward with any kind of deal. Advanced software helps you with the publishing of data and connection to investors.
Automating the Closing and Financial Reporting Needs
When you look at the other costly areas of raising capital, it boils down to closing costs to a legal team, as well as accounting costs to manage financial reporting. Software solutions can help with these in pieces, but few solutions can handle everything from top to bottom.
With Figure Equity Solutions you generate a closing package automatically, saving you legal fees, and distributing it right on the platform. Following closing, all the activities get an automatic update to your capital table. Along with automation of financial reporting needs, this can save you in direct professional costs as well as hours spent managing the capital raise.
Startups need to get creative to save on time and resources wherever possible. Raising funds for your business will cost money, but it can cost a lot less when you utilize digital solutions to power the process. Figure Equity Solutions can help you with the identification of suitable investors, and drive you forward to success, one capital raise at a time.