I’m raising capital. How do I do it? Startup lawyer series – article 1

As the owner of an up-and-coming start-up, you, no doubt, have goals for further growth. While all businesses begin with an idea, your dream of bringing this idea to life is almost always only possible with some capital. So how do I raise these funds? In short, it can be a tricky process, and certainly one where the advice of a startup lawyer wouldn’t go astray. Start-ups require funds to grow, and getting your hands on this capital means combining creativity with flexibility. A suitable funding method for your business model might not be the best option for another. The following is a brief rundown on some of the approaches you should already be considering, preferably with the guidance of an experience startup lawyer.

Have you done your homework?

The importance of extensive research cannot be understated when starting up a new business idea. This requires knowing every nook and cranny of your business model and what the current competitive market looks like. During this initial phase you’ll have opportunities for establishing relationships with potential investors. Keep your eyes peeled and your mind open, it’s better to have an ally than an enemy whenever possible. Navigate the legalities with a startup lawyer before proceeding with any investors.

Entrepreneurs, when raising capital for their startups, have to ensure that they convey the right message to potential investors. Know your product inside-out and be prepared for the tough questions. It is fundamental that you believe in your product, even if it is just an idea at this stage. This will help communicate your integrity to, and faith in, the business, which will make the investment opportunity look more attractive. Since finding capital is easier said than done, don’t forget to look to those around you for funding, it’s usually a safer and more affordable starting point.

What are my funding options?

Funding can come from several places. Careful consideration should be given to each potential source of funding when choosing which is right for you and your business. A simple option may be taking a term loan from your bank, or perhaps it’s more fitting to use your savings, credit cards, or insurance for funding. Either way, as an entrepreneur, consider what the returns on the investment might be. If, personally, you’re unable to fund your business idea, keep in mind the possibility of funding from friends and family. What about investment ”angels” who provide funding for equity or returns? Or perhaps venture capitalists who invest in startups? Remember, if you own assets or receive royalties, you can apply for a loan on that basis. Though giving a slice of the pie in the form of equity may seem like a good idea, it’s advisable that you speak first with a startup lawyer if you wish to move forward on this basis.

How do I get these funds?

If, personally, you don’t have the resources available, finding investors is key. Locating these people is, by far, the most challenging hurdle when you’re attempting to fundraise for your startup, and patience is important in avoiding any hasty decisions. Once you decide on the most appropriate means, you should be enquiring with a startup lawyer as to the legal considerations.

Next, building rapport with the investor(s) is essential to establishing a professional working relationship. Having everything written down, where goals and objectives are clear and discernible is a great starting point to presenting yourself and your idea and worthwhile to any investor.

Further, it is paramount that a startup lawyer assist in drafting the documents that relate to the investment arrangement. The startup lawyer will understand the intricacies of such an agreement and will draft the necessary documentation. When you’re discussing any repayment/returns, be clear prior to the drafting of the contract so that there are no surprises.

Being an effective entrepreneur means being ready for anything. Your investors will certainly put you to the test, and may have changes of heart toward the current business model. Be open-minded to answering any new queries, and handle the objections with a calm and confident demeanour. Flexibility is important when capital is being offered.

Finally, be professional and honest with your investors. They may offer a second round of investment funding, which could push your business to unprecedented growth moving forward.

What could prevent funding?

 As a small business with little to no funding, it will be a challenge convincing investors you’re not inexperienced. The bank might refuse a loan application based on your credit history, or lack thereof. “Angels” might shy away from the idea because of the risk level involved in their investment – they’re not confident in the product or idea itself and have not seen the ROI potential that you have tried to convey. If this is the case, don’t lose hope. It simply means your approach, idea, or source of funding might need adjusting.