Reading time: 6 minutes

One of the most common queries we get at LegalVision is how a startup should go about raising capital. We’ve not only assisted hundreds of companies through the capital raising process, but we’ve also raised four rounds of capital ourselves since we launched in late 2012.

To Raise or Not to Raise?

The moment you raise a round of capital, you begin answering to someone other than yourself and your co-founders. Investors are generally looking for a return on their investment, which means a future liquidity event must be on the cards. Before raising any external capital, you need to ask yourself if this is a path you want to go down. Many startups will simply have no chance of succeeding without raising external capital. While external capital has the potential to help you supercharge growth, it is not necessary to build a fast-growing, profitable business.

A great way of working out whether raising external capital makes sense for you is to speak to founders who have raised, either from angel investors, VC or corporate investors.

The Australian startup community is friendly and supportive – if you’re prepared, focused and obviously not a time waster, most founders will be up for a 30-minute chat over coffee. So, reach out through your connections, speak to some founders who have raised external capital, and use those conversations to make a decision. If you’re lucky enough to be working out of an accelerator or other co-working space, there will likely be dozens of other founders around who will be happy to speak with you about this issue and have plenty of tips and tricks which may assist.

Finally, ask yourself, will you increase the value of your shareholding in the company by taking on external investment? External investment will dilute your shareholding in your startup. So, you should only raise capital if you think doing so will increase the value of your stake.

What Are You Looking For In An Investor?

After you’ve decided to raise a round of capital, you need to start thinking about the most appropriate investor.

In many ways, the investment community will dictate this decision. If you’re looking to raise $20 million, a friends and family or angel round isn’t going to make much sense! On the other hand, if you’re looking to raise a $200,000 seed round, you should steer away from VC funds and look to fill out your round in the angel community.

When discussing your round with investors, ask them what they will bring to the table beyond cash. Another consideration is looking for investors who can contribute to the success of your startup beyond just providing cash (also called ‘smart money’).

Within the angel investment community, some of the best investors will open up doors for your startup, whether to VCs for future fundraising rounds or to customers (particularly in the enterprise sales space).

Many people talk the talk but don’t walk the walk. Once you’ve brought an investor on board, they will usually be on your cap table for a long time. It’s also possible that choosing one investor will close the door to a relationship with others. If you’re lucky enough to have more than one option, make sure you take the time to think seriously about who would be the best investor.

Quick Tip: Speak to startup founders who received investment from your potential investors.


Types of Investors and What They’re Looking For

Type of Investor What they are looking for Pitch tips
Friends and Family They want you to succeed! Generally, a financial return is a secondary consideration for friends and family. Don’t overvalue your startup at this early stage. It’s not fair to you nor future investors.
Angel Investors Very variable. Some are looking for ‘home runs’, others are looking for a good risk adjusted return. Angel investors are a very diverse bunch, and it’s fair to say that Australian Angels are somewhat more conservative than Angels in Silicon Valley. Angel investors will be looking at your potential as a founder and your key team members. A good idea is nothing without good people behind it.
Micro-VC Micro-VC funds offer smaller scale investment usually in a seed round. Mostly managed by experienced investors looking to get in early with the next big thing (and take more of a risk in doing so). Micro-VC funds fill a gap in the market for financing early stage companies. Research the investment thesis and areas of focus for different micro-VC funds and find one that aligns with your startup.
Institutional VC Institutional VC funds can participate in any funding round but more commonly get involved post-seed round. They can provide large scale investment but often will ask for a degree of control in return. Institutional VC funds are looking for startups that have gained traction and are growing fast. Show evidence that highlights your startup’s growth.
Corporate VC/ Investors Many large corporations now have their own VC arms. Others large corporations will simply invest on balance sheet. Corporate VCs are generally looking for the same things as institutional VC funds – to invest in high-growth startups that will generate an outsized return. Having said that, corporate VCs tend to have strategic objectives. Remember that corporate VCs/investors tend to invest in startups that they might end up acquiring. They may even seek a path to control when initially investing.

Investment Philosophies from Leading Australian VCs

Blackbird Ventures Blackbird is one of Australia’s largest venture capital firms and invests in startups at any stage. Their fund is based around the concept of ‘founders helping founders’ and they look to invest in ‘Australians wanting to be the best in the world, not the best in Australia.’
AirTree Ventures AirTree is a large venture capital firm which invests in disruptive business at both seed and Series A+ rounds. AirTree looks for ‘world-class Australian and Kiwi entrepreneurs’ and has a strong focus on nurturing high-potential founders.  
Square Peg Capital Square Peg invests primarily in tech startups from Australia, New Zealand, South-East Asia and Israel. They look for ‘entrepreneurs solving big problems in a differentiated way’ who have the passion and ability to scale their startup effectively.
Blue Sky Venture Capital Blue Sky provides late stage venture capital and early expansion capital to Australian businesses. They look for companies that have begun to establish themselves and can demonstrate rapid, sustainable growth and strong management.
Reinventure Backed by Westpac and sporting a new model of corporate venture capital, Reinventure supports fintech startups and disruptors for the long term. Reinventure looks to ‘unlock maximum synergy value between [their] ventures and Westpac’.


If you have any questions about raising capital for your startup, get in touch with our startup lawyers. Fill out the form on this page or call us on 1300 544 755.

This article was an extract from LegalVision’s Startup Manual. Download the free 60-page manual featuring 10 case studies from Australia’s leading VCs and startups.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards