What does it mean to raise capital?
Raising capital essentially means getting the money you need to grow your business from investors. Raising capital is another way of talking about financing your business. You can raise capital through investors, or you can take out debts, like loans or credit cards, to finance your business venture.
What is capital?
When most people think of capital in business, they think of tangible assets, like manufacturing equipment or the building that’s used to manufacture goods. It’s true that these are forms of capital. But capital also refers to financial assets, including funds that are held in an account, that are used to build wealth in your business. Note that materials that are consumed or used as part of a process aren’t capital.
Think of capital as investments that generate wealth and can be sold off. A brand name or software can be considered capital as much as a piece of manufacturing equipment since these all generate wealth and can be sold off as assets. Equipment is still capital, even though it depreciates in value. Equity capital in the form of investments doesn’t have to be paid back and is used to grow wealth in the business.
How do you raise capital for your business?
Raising capital takes time and a lot of thought. You can’t just ask for capital and expect to get it instantly. You need to have a solid business plan in place that describes why you need capital (how you’ll use it, what the ROI is, etc.) and why someone should give it to you.
Here are some ways to raise capital for your business, especially if you’re just starting up:
1. Ask friends and family
It can be hard to get your business off the ground when you’re just starting out. If you have close enough relationships with your family or friends who have some business experience, see if they can help you out with a loan.
Treat any loans from a family member or friend the same as you would with a bank or other lender. Write down your terms and make sure both parties sign an agreement. Make your payments on time and in full.
Crowdfunding sites have become a popular source for business startups to get money from like-minded investors. Keep in mind, you’ll have to pay some funding fees as well as processing fees. You also need to have a killer story that will attract a lot of buzz and convince people to give you their money.
A lot of sites take an all or nothing approach, where you either get all the crowdfunded money if your campaign is successful, or you get nothing if it’s not.
3. Take out a loan
You can take out a loan from a bank or online lender if you qualify. Online lenders are often more likely to lend to startups than traditional banks, so look there if you get rejected for a bank loan from your home bank. You can also take out a business credit card to buy capital investments, and then pay your creditor back every month.
4. Find an angel investor
Use a platform like Capital Raising Club to find an angel investor who has experience in your industry. Angel investors by definition are accredited by the SEC and have at least $1 million in net worth and an annual income of at least $200,000. They are frequently retired business owners who want to mentor other business owners and be involved in making business decisions. They use their own money to fund businesses.
5. Pitch to a venture capital firm
Venture capital firms are made up of investors and companies who want to invest in companies that have long-term potential. They tend to invest significantly more than angel investors, since they aren’t funding with their own money, and they generally want a seat on your Board of Directors.
Raising capital for your business
We believe in the power of raising capital through business equity, which is why we aim to bring business owners together with angel and capital investors. When it comes to investors, you need to do your homework and research investors who are passionate about your type of business. Don’t just blindly pick an investor to pitch your idea to.
Angel investors and venture capitalists generally invest in companies they believe in that’s related to their own personal and professional interests. Investors plan to stick with your business for the long haul, so they’ll want to mesh with you professionally and personally before they decide to sink their time and money into your business.
Search our directory to see which investors are a good match for your business, and make sure to read up on the differences between venture capitalists and angel investors before you come up with your pitch.