What Is a Capital Raising Strategy?

Tom Uhlhorn
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What Is a Capital Raising Strategy?

Raising capital for your business is a normal part of growing and expanding your investment. Even if you have enough initial capital to get your business up and running, you’ll need to expand it as you go, which is where an effective capital raising strategy comes in handy.

Although there are numerous ways to raise capital for your business, you shouldn’t jump right in without a clear strategy. Otherwise, the outcome may disappoint you. So, how does capital raising work? This article explains what a capital raising strategy is and how it will help you to raise enough capital for your business.

Definition of Capital Raising Strategy

A capital raising strategy is a process of raising capital from external sources to achieve your business’s strategic goals, like investing in your business development or investing in other assets like M&A, strategic partnerships, and joint ventures. In short, a capital raising strategy is a formula for pursuing and acquiring the funds that your business needs to boost its growth. 

Recently, companies in Australia have been taking advantage of low-interest rates to raise enough capital for their growth. The recent efforts of the Australian government to inject more cash into the economy have also allowed businesses to raise capital. There are also increasing numbers of fundraising sources that offer more capital raising in Australia. So, it’s been significantly easier for companies in the country to raise enough capital for their business, although this looks to be changing in the short-term. 

The process of raising capital is an extensive and serious undertaking that requires proper planning. It involves several critical steps, including finding investors, creating pitch decks, poring over financial spreadsheets, and coming up with the most effective strategy. Developing a good strategy helps simplify the process by creating several deliverables. 

How to Develop a Capital Raising Strategy

First, understand that there are three main options for raising capital: debt capital, equity capital, and hybrid capital. Debt capital is the type of business capital raised through debt from a third party which is paid withinterest over an agreed period; equity capital is the money raised by selling a percentage of your equity to an external investor. Apart from getting funds to boost your investment, you’ll also enjoy expert advice from the investor.

Hybrid capital is a combination of both debt capital and equity capital. It comes in the form of a convertible note that allows you to convert the loan and its interest to equity in the future, so your capital raising strategy should clearly spell out the type of capital you want to raise. Once you’ve established the best type of capital for your business, you should break down the roadmap for raising the capital into several achievable deliverables.

These deliverables include setting your goals, preparing your finances, assessing your readiness, developing your capital raising pitch decks, practising your pitch, and meeting your target investors–each of these deliverables can have sub-points to make it even more detailed.  A thorough strategy maximises a positive outcome and makes the overwhelming process of raising capital manageable.

Setting Your Capital Raising Goals

You should have a clear picture of what you expect to achieve from your capital raising. Ask yourself this question: How much money do I need, when do I need it by, and how do I intend to use it? The answer to this question forms the basis for your capital raising strategy.

Assessing Your Preparations and Readiness

This involves getting a complete view of your company’s current financial situation and projections. Any potential investor would like to know if your company is ready for growth, so you have to prove to them that you’ve already gained enough market traction and are at a point where you need more capital to grow.

Preparing Your Pitch Decks

You need to prepare a professional business plan that details all your products and services. Your plan also has to demonstrate the actual value of your company as potential investors are interested in companies that already have tangible value–nobody wants to throw their money away.

Developing Financial Models

Before you approach investors for capital, make sure your financial records don’t have anything that raises suspicion. For example, review your current performance estimates and make the necessary adjustments based on the changing economic outlook.

Pitching to Your Investors

You should prepare a well-crafted message that will entice potential investors, and your pitch should contain all the immediate and long-term benefits that your investors will enjoy from the deal. With a reliable capital markets management system (CMMS) like Fresh, you can develop a data-driven capital raising strategy that guarantees you the best outcome.

Fresh empowers issuers to adopt a data-driven capital markets strategy

Fresh is a Capital Markets Management System that uses data to provide issuers with (1) the insights to help them understand existing and potential shareholders, (2) the tools to reach and engage the market more effectively, and (3) the ability to raise capital from verified sticky investors.

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