Last Updated on December 6, 2022 by Selina Parker
Raising capital can be a complex process for any business.
Raising money is often an entrepreneur’s first step when starting a company, but it’s not the only way to get funding. Capital raising can take many forms, including investment from venture capital firms, angel investors, equity financing, companies borrowing money from banks, etc.
But before raising capital, you should be able to answer the following questions to determine whether you’re ready to raise money.
Top Questions You Should Ask Yourself Before Raising Capital
1. Why should others invest in my business?
Putting yourself in your investors’ shoes will help you determine the answer to this question. Venture capitalists, private equity, or institutional investors, regardless of what and who they are, think like them and examine your business as thoroughly as you can to communicate your business idea, its value proposition, and the risks involved in investing.
The more prepared you are with an answer to this question before capital investment, the less time it will take for investors to decide whether they want to invest.
2. Who are my potential investors?
Every investor has different expectations and demands about their investment portfolio. An angel investor, investment banker, corporate finance, private investor, or other institutions that provide financial services, you have to consider them all.
Your ideal investor is a person who has the same business goals as you do, at least in terms of long-term vision and direction.
If your potential backers have different ideas of what success looks like for your company or how to attain that goal, this can become problematic.
Investors are not just people who provide capital; they also bring experience and connections. Make sure you’re investing with them on equal terms.
3. When should I start raising?
The answer to this question is dependent on different factors such as your business stage, industry dynamics, market conditions, etc. You should constantly be raising capital while your business is still growing.
If you are already generating revenue for your business, make sure you have enough cash to get through the next 12 months. Raising money when there’s still a lot of growth left in your startup can help accelerate that process and provide more opportunities to scale up after receiving funding.
4. How much capital do I need?
Determining the amount is the most critical question you should be asking before raising capital. Knowing how much money your business needs to reach its short-term goals will allow you to see how much investment you need from outside sources.
Remember that investors are not just giving away their cash because they feel charitable towards your cause or want to help out entrepreneurs in need; they expect something in return for their investment.
Be realistic about how much money you need to make your company competitive and attractive to investors.
5. How am I going to use the money?
Once you’ve pointed out why others should invest in your business, now start thinking about how you will be using the money. Startup capital is there to make your business grow faster, but you should be able to explain how this will help in future financing rounds.
Make a detailed guide on where and how you will spend the money you raise so you won’t lose track of when you’re spending it.
6. What problem am I solving?
If you get the funds you need, what problems are you solving? Raising capital is the first step in expanding your business, but it’s essential to know why people should care about what you do.
Your investors will want to understand how their own money can help solve a problem they have or concern them deeply.
7. Am I comfortable with all of these potential outcomes?
Based on the problems you will solve using the capital raised, are you content with all the possible outcomes and risks?
Raising capital can be difficult for you because it’s not just about getting money that will help your business grow but also about giving up some of your company’s ownership.
Before taking investors’ money, asking yourself this question is essential for knowing your true intentions when raising capital.
8. What is the worst thing that could happen if I don’t raise any funds?
Think of all the possible reasons you may not want to raise capital and how it would affect your business. If your business is concerned about taking on investors, then there are probably some additional risks that come with it.
Entrepreneurs need to determine how they will finance their businesses before raising money from outside sources. If the investor has a negative experience, it could result in poor word-of-mouth.
Raising capital can be a great way to grow your business, but you should first determine whether it’s the right path for you and, if not, what options are available to help you finance your startup.
9. What is my exit strategy?
It’s not easy to predict how long it will take before you can fully capitalize on what you’ve built. Thinking about an exit strategy can help investors know when they might see a return on their investment if they decide to invest.
Think of this as what you are aiming for in the mid-term. Knowing your options might help make this decision more manageable, especially when there’s time pressure involved with raising funds.
If you need more strategies for raising capital without giving up equity, The Fully Funded Method is a great resource. It has a complete manual that will help you raise money without giving up equity and other exclusive strategies you may have never heard of yet.
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ABOUT THE AUTHOR
“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”