Capital Raising Assistance 

Accelerate Your Capital Raising Processes with the Help of Our Expert Guidance 

Capital Raising Assistance

The art of raising capital essentially means soliciting and obtaining the money needed to grow a business from investors. Whether you find yourself as an entrepreneur, a startup visionary, or a seasoned business owner, understanding the art of raising capital can frequently signify the distinction between achieving success and encountering failure.

The concept of capital raising involves a company securing funds from external sources to advance its strategic objectives. These objectives might encompass internal business expansion, as well as investments in external assets like mergers and acquisitions, joint ventures, and strategic partnerships. 

Capital raising is very important to any establishment because it helps set the company on a path of fast growth and speedy achievement of its business goals. Unfortunately, this process can be sometimes discouraging and not always successful. 

Methods of Capital Raising

Whether you’re embarking on an entrepreneurial journey, pioneering a startup venture, or overseeing an established business, mastering the intricacies of raising capital holds the potential to be the pivotal factor separating triumph from setback.

When considering the “how to” in raising capital, two primary methods stand out: debt financing and equity financing.

  1. Debt Financing:

This involves procuring funds by borrowing money from financial institutions or third parties such as banks or private lenders. In this arrangement, the borrowing entity(which is commonly a Startup or a growing business) agrees to repay the principal amount along with interest over a defined period. There are different of Debt financing and they include:

  • Secured debt: This type of debt involves utilizing collateral to back the loan, resulting in the company being eligible for reduced interest rates due to the decreased risk for the lender.
  • Unsecured debt: In this variant of debt, no borrower collateral is provided, causing the interest rate to be determined by the company’s credit history.
  • Tax-exempt corporate debt: Certain debts may qualify for tax exemption. A prime example is debt linked to sustainability-oriented projects.
  • Convertible debt: Often viewed as a hybrid approach blending debt and equity, convertible debt enables the option to transform the debt into equity if the borrower so chooses.

Advantages of Debt Financing

Debt financing offers several advantages to businesses that consider this option. They include:

– Maintained Ownership: When you opt for debt financing, the ownership and control of your business remain intact. Lenders don’t have a claim to the company’s ownership; they are primarily interested in receiving their loan payments at the specified time duration agreed.

– Predictable Payments: Debt payments, comprising both principal and interest, are scheduled and predictable. This can aid the startup founder or business in budgeting and financial planning.

– Tax Deductibility: Interest payments on loans are often tax-deductible, potentially reducing the overall tax burden of the business.

   However, most businesses are sceptical about raising capital via this method. Let’s see the considerations that make them think this way:

– Interest Payments: One major issue business owners avoid this method is because of its periodic payment of interest. These regular interest payments add to the cost of borrowing, impacting your profits. If not properly supervised, this can make the business suffer massive losses.

– Debt Burden: Excessive debt can strain your financials, particularly during economic downturns or unexpected challenges. It can also impact strategic managerial options. Debt burden can cause the company to become more conservative even on important decisions.

– Another disadvantage of debt financing is that the company or business owner is mandated to pay for it even in cases where the business folds up or winds up. This, most times brings legal consequences to the company and its owners.

 

  1. Equity Financing:

   Equity financing involves selling a portion of ownership in your company in exchange for capital. This is typically achieved through attracting investors, such as angel investors, venture capitalists, or even the public through an Initial Public Offering (IPO). Equity financing offers distinct advantages, namely:

– Infusion of Capital: Equity financing can bring substantial amounts of capital into your business, enabling expansion, research and development, and other growth initiatives. This capital comes from well-meaning investors, angels, family members and friends.

– Expertise and Network: Equity investors often bring expertise, experience, and valuable industry connections to the table, enhancing your business’s chances of success. The popularly used adage “two heads are better than one” comes fully into play. Investors who have myriads of experience building successful businesses bring their wealth of understanding to ensure the growth of the business.

– Shared Risk: With equity financing, investors share the risks and rewards of the business. If the business doesn’t perform as expected, the financial burden is partially shouldered by the investors. This makes equity investing more like teamwork. 

 In Equity financing, just as there are advantages, there are also important considerations or disadvantages that make most business owners and entrepreneurs avoid this method of capital raising. They include:

– Loss of Ownership: Selling equity means diluting your ownership stake in the company. Significant ownership relinquishment could lead to a reduced say in decision-making. As a matter of fact, some major companies follow this path but end up losing their company to the pockets of shareholders

– Sharing Profits: As your business prospers, a portion of the profits will be distributed to the equity investors, impacting the potential rewards for you. Since the investors share in the losses, they would gladly share in the gains of your business.

– Going Public in the Stock Market: One other reason early-stage businesses and startups avoid equity financing is the complex and resource-intensive process of taking their company public and listing it on the stock market especially when they are not ready to go public.

Learn how to strategically distribute capital to investors: Capital Distribution

The choice between debt and equity financing hinges on various factors such as your business’s financial health, growth prospects, risk tolerance, and long-term goals. Often, a balanced approach that considers a combination of both methods can provide the most suitable capital-raising strategy for your unique situation.

There are lesser-known funding alternatives such as invoice factoring, also known as invoice advances. This avenue involves a business selling its outstanding invoices at a reduced rate to secure immediate cash. This approach permits companies to borrow against the value of invoices awaiting payment from customers. Invoice factoring can emerge as a viable choice, particularly when dealing with multiple corporate clients characterized by extended payment terms or a tendency to delay payments.

 Preparing for Capital Raising

Capital Raising is a very crucial step in a business’s growth, hence it requires detailed research, careful planning and an understanding of the factors that would ensure its success. Let’s delve straight into the heart of the matter.

Assessing Capital Needs:

The first key step needed in raising capital is assessing the capital needs the business or startup in question requires. To do this, you need to;

  1. Identifying the purpose of capital (expansion, research, etc.): This is commonly the first question capital-raising firms or even investors would ask. Without having an in-depth understanding of the purpose of why your company needs a capital raise, the venture of raising capital would be futile. No investor or financial institution wants to put in funds for a venture without a reasonable purpose for sourcing capital. Are you planning to expand, research, disengage and diversify to another sector? These are questions you are required to answer.
  2. Estimating the required amount of capital: The next step requires you to accurately ascertain the exact amount of capital your business needs for its intended next phase. This will require a careful review of your current financial status and the cost of the reason for the expansion or growth. Without knowing this, it won’t be wise to approach financial institutions or investors.

Evaluating the Company’s Financial Position:

A comprehensive understanding of the company’s financial health is pivotal for effective capital raising. This assessment involves:

  1. Reviewing Financial Statements: Thoroughly examining financial statements, including the income statement, balance sheet, and cash flow statement, provides you with insights into the company’s financial performance, liquidity, and overall stability. These documents offer a historical view of revenue, expenses, assets, liabilities, and cash flow patterns.
  2. Identifying Key Financial Ratios: Analyzing key financial ratios, such as liquidity ratios (current ratio, quick ratio), profitability ratios (gross margin, net margin), and leverage ratios (debt-to-equity ratio, interest coverage ratio), offers a quantitative assessment of the company’s financial strength and operational efficiency. These ratios highlight trends, strengths, and potential areas of improvement. This helps you sound more convincing to potential investors about the lucrativeness of your business.

 Creating a Compelling Business Plan:

A well-crafted business plan serves as a roadmap for investors, showcasing your company’s value and growth prospects. Key components include:

  1. Highlighting Your Company’s Value Proposition: Clearly articulating what sets the company apart from competitors and why it’s an attractive investment opportunity. This encompasses the unique products, services, or innovations the company offers, as well as its competitive advantages and market differentiation.
  2. Outlining Growth Strategies and Market Opportunities: Detailing the strategies the company plans to employ for expansion and revenue growth is crucial. This includes identifying target markets, customer segments, and demographics. Additionally, outlining how the company intends to capitalize on market trends and opportunities demonstrates foresight and market acumen.

A compelling business plan not only instils confidence in potential investors but also serves as a strategic tool for internal alignment and goal achievement. By presenting a clear picture of the company’s financial standing, unique value, and strategic direction, the business plan enhances the company’s appeal and likelihood of successful capital-raising efforts.

Also, learn more about how to write a business plan.

Sources of Capital: Where Does the Capital Come From?: 

When considering funding options available for small businesses, several avenues can be explored to secure financial support. These avenues encompass a mix of governmental and private sources, each with its distinct characteristics and requirements. Here are some notable options:

  1. CrowdFunding: 

This involves raising business funds from a large group of people who offer or donate a portion of their money or even offer a product and take preorders as a way to support the project. It is a given that people won’t give to your business for free except with the promise of equity or interest depending on the type of crowdfunding you choose.

  1. Bootstrapping: 

Bootstrapping refers to the process of using your personal finances such as your private savings and earnings to start up or fund your business. It is generally when an entrepreneur or business owner establishes their business without any external investments from investors or loans from Banks.

  1. Seed Funding: 

Seed funding is the initial capital that a startup raises to support its early development and operations. It often comes from a variety of sources, including personal savings, family members, friends, colleagues, mentors, and sometimes even angel investors. This stage is crucial for getting a startup off the ground, covering initial expenses such as product development, market research, and building a minimum viable product (MVP).

  1. Small Business Lenders:

Small business loans constitute a diverse group that includes entities like SMEDAN(Small and Medium Enterprises Development Agency of Nigeria), private and public group lenders, banks like Standard Chartered banks, Development Bank of Nigeria, Deposit Money Banks, and credit unions. These lenders extend capital to small businesses in exchange for regular interest payments. Often, collateral or assets like bonds or real estate are stipulated as security for the duration of the loan. Bank loans within the range of 1,000,000 to 100 million naira are tailored to businesses looking to reinvest profits into growth.

  1. Angel Investors:

Angel investors differentiate themselves from traditional lenders by being high-net-worth individuals. They invest cash into businesses in exchange for a share of the business’s profits or equity. These investors are attracted to early-stage companies with growth potential. Investments from angel investors can reach substantial sums, and while not always a long-term commitment, they can provide valuable mentoring, depending on the individual investor.

  1. Venture Capital:

Venture capitalists (VCs) offer funding with a distinctive emphasis on building close relationships with business leaders. Venture capital involves a collective of entrepreneurs, bankers, and product developers aiming to identify businesses poised for potential growth and even public listing. Venture capital funds handle portfolios worth hundreds of millions, but their equity stake in a company is usually modest. Companies can secure multiple rounds of equity investment from venture capitalists, spanning several years.

  1. Private Equity Firms: 

Private equity firms are firms involved in investing in companies that are not publicly traded on stock exchanges. They offer private equity funds, money pooled from various investors, such as high-net-worth individuals, institutional investors, and even other businesses, to acquire equity ownership in companies. 

These funds can then use the collected capital to invest in businesses across various stages of development. For startups, private equity funds can provide capital during their growth phases, helping them scale their operations, expand into new markets, or develop new products or services. However, these startups typically need to demonstrate a certain level of growth potential and attractiveness to secure private equity investments.

  1. Institutional Investors:

Publicly traded companies have access to institutional investors, a category comprising mutual funds, public and private pension funds, hedge funds, banks, and insurance companies. These investors pool substantial capital and seek well-established businesses with a proven track record of returns. Enterprises often raise capital on the stock market. Additionally, institutional investors such as banks can offer credit lines, corporate bonds, and business loans.

 

  1. Incubators and Startup Accelerator:

Incubators are platforms that assist entrepreneurs in refining their business concepts, plans, and models. They offer guidance to shape these ideas into viable ventures. They do this for a longer period of time and also offer funding opportunities to businesses. On the other hand, startup accelerators cater to businesses that have already validated their minimum viable products. These organizations facilitate rapid scaling for such businesses, enabling them to expand their operations swiftly. The duration for this can take 3-8 months of intensive development and growth. 

Both incubators and accelerators offer more than just guidance; they often provide financial assistance during their engagement with startups. Examples of such in Nigeria are Google startup Accelerator Programs, Co-Creation Hubs, Y-combinators, Seedstars and others.

  1. Grants:

This encompasses funds provided by federal governments, foundations, and institutions, that serve to support projects and initiatives aligned with the public welfare. The distinctive advantage of grants lies in their non-repayable nature upon receipt. Nonetheless, it’s worth noting that securing grants can be challenging, often entailing a comprehensive and involved application procedure. With Qeeva’s assistance, you can streamline your grant application process, providing another avenue for raising capital for your startup.

 

With Qeeva’s support, you can navigate this process more efficiently, enhancing your chances of obtaining the funding necessary to drive your startup forward. 

Examples of bodies that can offer you grants for establishing your business include the Tony Elumelu Foundation, Bank of Industry, African Digital Financial Inclusion Facility and Lagos State  Employment Trust Fund amongst others.

How Qeeva Advisory Can Help You Raise Capital for Your Business

At Qeeva Advisory, we help you navigate the demands of these startup funders by providing you with a result-driven capital-raising advisory to meet their requirement. Normally, these processes would require a lot of time for Accelerators and Incubators, but we act as partners working together to make sure your desires and needs are met.

Below is a step-wise process of how we ensure your business is able to raise the capital it needs.

Holistic Strategic Planning

Together with you, we elucidate your aspirations and forge a well-defined path that charts your company’s course toward securing the essential funds for growth. Our expertise demystifies the intricate process of capital raising.

Comprehensive Financial and Operational Readiness

We meticulously construct a comprehensive depiction of your company’s financial performance and projections by creating a detailed and convincing business valuation report. Concurrently, we guide the orchestration of your team and systems to ensure that investors are favourably impressed.

Due Diligence

We methodically organize all pertinent financial, legal, and intellectual property records, customer lists, contracts, and any requisite documents crucial for investor scrutiny.

Strategic Deal Structuring

Assisting you in evaluating potential capital structures, we aid in determining the optimal blend of debt and equity tailored to your needs. Simultaneously, we craft an offer designed to resonate with potential investors.

Crafting of Comprehensive Marketing Materials

We undertake the creation of an exhaustive set of requisite materials that potential funders anticipate. This includes the development of business plans, pitch decks, press kits, due diligence components, financial models, term sheets, Teaser memos, investment memorandum and other pertinent legal documentation.

Pitch Delivery Coaching

Through collaborative efforts, we meticulously prepare and rehearse your pitch. This ensures that you can effectively convey your passion, sidestep potential pitfalls, and aptly tackle the intricate inquiries that potential investors are likely to pose.

Your Business has Lofty Growth Ambitions, Allow us to assist you in your Fund Raising Process

Reach Out to Us via call at +234 8023200801, 08075765799 or email: info@qeeva.com or fill out our contact form