5 things you
need to know
about
Capital Raising
- Capital raising is heavily regulated in Australia, including restrictions on advertising. Understand the laws and exemptions and ensure you conduct your offer in compliance with the law.
- There are three possible structures for an equity capital raise, including an equity round (either ordinary or preference shares), convertible notes or a simple agreement for future equity (SAFE). Each structure has benefits and drawbacks, so it is best to research which is best for your startup’s growth plan.
- With an equity round, founders issue investors shares in the startup in exchange for cash. The key areas of negotiation will be the company’s pre-money valuation and investor protections (such as the type of shares they are entitled to receive and their voting rights).
- If you raise too much capital at a low, early-stage valuation, you and your co-founders will take excessive dilution — potentially undermining your long-term incentives to grow your startup. Aim to raise enough to help you reach your next milestone.
- Government departments may be willing to contribute to your startup through grants. One of the main advantages of these investments is you receive additional capital and the department will not usually be looking for anything in return by way of an equity stake.
