Complete Guide to Executing a Capital Raise
An effective fundraising campaign can make or break nearly every aspect of your business. Seasoned entrepreneurs will recognize the magnitude of successfully executing a capital raise, but the process might be unfamiliar to first-time business owners or newcomers to a company’s finance team.
A successful capital campaign has three crucial phases—planning, execution, and post-campaign action items. Explore each phase in more detail below to help you create an impactful campaign, secure investors, and take your business to the next level.
Planning phases are crucial for any successful endeavor, especially for executing a capital raise. Creating a robust campaign plan will keep your finance team focused and on budget throughout the process.
Assess How Much Capital You Need
First and foremost, you will need to determine your company’s valuation, (estimated) market competitiveness, and project how much runway is needed to decide how much capital to seek.
You will also need to consider what you are willing to part with. Venture capital (VC) and private equity (PE) firms usually are provided with an ownership stake in your company and some decision-making input as part of the exchange.
Any investor you approach will want to see a thorough business model and strategy, no matter how interesting they find your idea. If they are funding your venture, they will want assurances of a reliable return on investment.
Depending on your business’ stage and the sought-after funding, there may be greater expectations of your minimum viable product or service, company maturity, and existing market success. Early-stage investors will be more comfortable with less, but later funding rounds—such as Series A, B, C, and on—will certainly expect significant financial information to assess whether they want to inject capital into your business.
Where is the Money Going?
Once you determine your fundraising goal, create a detailed, transparent plan for allocating the capital after (or during) the campaign. Your disbursement plan should describe:
- Which projects raised capital will fund
- Your resource allocation schedule
- An estimated cost list for each project, accounting for
- Overhead costs
- Staff wages, bonuses, and benefits
- Materials purchases
- Consulting fees
- Which goals take priority if you do not reach your fundraising goals
This plan has two purposes:
- Giving your finance team a complete and approved reference document
- Providing transparency to your investors about where their money will go
Which Investors and Firms Should You Pursue?
It takes substantial resources and bandwidth to secure capital investment, with a timeline of up to 9 months for many businesses. You want to ensure that the investors and firms you approach align with your industry and have a proven track record of providing supportive mentorship for scaling businesses.
Keep in mind that securing capital from just any source may not be beneficial, so you do not want to waste critical bandwidth on poor matches. Instead, you want to fundraise from the right sources.
Once you complete the planning phase, the exciting part can begin—raising capital for your growing business. While you recruit investors, use the operational guideposts below.
Accessing (and Building) Your Network
Your first step after launching your capital raise is getting the word out. Alert your network that your brand is raising capital, send out invites for Q&A sessions, and schedule as many (qualified) meetings as possible.
Remember that networking requires overhead—you and your finance team will need a list of qualified candidates to approach. Still, sometimes taking meetings with less suited investors can provide opportunities for you to refine your pitch without high stakes.
Furthermore, just because a contact is not likely to invest, they may know someone who will. A capital raise is an excellent opportunity to expand your network, and you can meet potential investors by:
- Asking non-investor contacts for referrals to other potential supporters
- Attending local and virtual networking events (e.g., Chamber of Commerce meetings, panel discussions)
- Researching the latest-announced funding deals to determine which investors may be interested in similar markets
Similar strategies to personal networking apply to scheduling pitch meetings and getting your foot in the door.
Once one or more investors agree to back your venture, you will have a new task—managing your financial support. A few investor management tasks include:
- Establish a meeting schedule – Most investors providing significant funding will want to be hands-on and actively provide mentorship. If their investment comes with an exchange of equity, they will also be your partners and need to be involved in board-level decision making.
- Documentation – Keep meticulous records of investor meetings, drafted and executed contracts, investment amounts, meeting minutes, and donor profiles. Create a file for each investor, and prepare to send them copies of any documents they request.
- Thank-yous and other relationship builders – Send personalized thank-you gifts to your investors to communicate your gratitude and excite them about the growth of your brand.
If you have never executed a capital raise before, or you plan to raise more capital than ever before, consider hiring an interim CFO to assist with the financial elements of investor management.
#3 Post-Campaign Tasks
The work does not end after the last day of your capital raise campaign—you will have to disburse your capital and keep your investors updated as you use their funding.
Distribute Capital According to Plan
Make every possible effort to stick to the capital disbursement plan you created in the planning stage. When you utilize significant sums of the fundraising money, alert your investors and update them about the next phase in your business development plans.
Some investments are provided all at once, but others may be disbursed over time. If you must deviate from the initial distribution schedule, detail the changes to your investors, finalize a new disbursement calendar, and send the new document to all stakeholders.
Consider Whether More Fundraising will be Needed—and Find Financial Advisory
Many businesses—especially startups—will not secure all the capital they require to scale fully in one go. Therefore, you may need to revisit the fundraising process after 12-18 months to build your financial runway out further.
A business showing signs of success will have an easier time attracting investors at later stages, but the financial strategy and preparation become increasingly complex with each passing round.
Navigate Capital Raises with Help from CFO Hub
Executing a capital raise is far from simple, but with the right finance team on board, you can skyrocket your business, gain new contacts, and raise the funds you need to grow.
If you need support when approaching your next fundraising round, managing allocated capital, or scaling your team, look no further than CFO Hub. Our experienced finance staff can help your existing team create long- and short-term financial plans, cash flow analyses, determine the right capital arrangement, and much more.