Are you looking to raise funds ? Here are seven things you need to know

Are you looking to raise funds ? Here are seven things you need to know

Fundraising can be a long and difficult process. The mindset of the founders, clarity regarding structures and processes, as well as knowledge of Due diligence reports, Valuation reports and other related documents for investment, are vital.

If you want to see any entrepreneur become successful, they need to determine the extent of the success that the founder wants to achieve. Each founder hopes their business will become a monopoly-free company; however, raising funds for a successful business can be lengthy. The founder’s mindset is essential, as is clarity about processes and structures. Understanding proper due diligence procedures, appraisal reports and other documents related to investments are crucial.

1. HERE’S WHAT YOU NEED TO BE PREPARED FOR:

Contingencies, patience and humility in seeking money can take as long as an entire year and is dependent on the conditions that follow the agreement. This could include revenue goals, market conditions, and other compliances with regulatory requirements. It is, therefore, beneficial to plan the round to stay consistent with your ‘ask’ to the business. For investors, if an entrepreneur cannot justify the quantity demanded, it indicates a red flag. Some businesses may require higher capital levels than others at the beginning stages, and others require more later. However, seasoned investors can be able to spot the ridiculous quickly. Therefore, make sure you understand the purpose of raising funds, the reasons you need it in a specific timeframe, and what they’ll serve.

2. What you do to get money is vital.

Startups are by nature, and the uncertainty makes it difficult to obtain financing through debt. In recent times, however, equity financing has undergone an important change and has been able to protect the interests of startups and investors. A venture capitalist may now invest in the business by subscription to the equity share capital or purchasing Compulsory Convertible Preference shares (CCPS) and Compulsory Convertible Debentures (CCD). Equity shareholding is not a guarantee of an investment with a guaranteed return and doesn’t confer any unique rights or privileges. However, the two options, CCPS and CCD, are hybrid options that can benefit angel investors or venture capitalists, as in the case of founders. The founders can control the direction and have the right to make decisions within the venture by issuing convertible instruments. Another type available for purchase is the I-SAFE The I-SAFE is an India Simple Agreement for Future Equity. This is a mix of all the instruments discussed above. It is transformed into equity in the event of certain circumstances that both the founder and investor negotiate. Being aware of proposals and their effect on the company is vital.

3. The importance of financial and legal assistance

Legal knowledge is essential in all of the above situations, particularly when it involves communicating the same to founders and investors with clarity. A skilled CA secretary, CA, and lawyer will ensure that structuring is completed in compliance and with a thorough method. They are also crucial in the valuation of a business or in terms of how much stake the founders hand out.

4. The reliability of appraisal reports

The valuation report of the company, compiled by an approved valuer, will establish an appropriate benchmark for the level of shares owned by the company. Investors and founders will have an accurate idea of the stake that is appropriate to give out and at what cost. This simplifies the process of getting funds and gives an objective basis to support the debate.

5. Partnerships with strategic partners, as well as post-investment analysis

Partnerships can be the difference between success and failure for a company’s success. Certain strategic partners might not necessarily bring the financial investment. However, they can help the business connect with potential partners. To maximize the benefits of this type of partnership, the founders should be cautious regarding the conditions of their association and perform the necessary research to justify the collaboration with other participants.

6. Patterns of shareholding and the share-cap table

The founders need to know that the shareholding structure could change after investing. They should analyze the specifics regarding the agreement between shareholders and other legal documents to ensure they are in the right place. These founders have been directly connected to the business’s goals; therefore, they are the most suitable people to ensure that all paperwork is in line with the definitive agreement for the business.

7. Fundraising isn’t an easy task, and you must be prepared for the long run

Fundraising is to be able to spend money on your company. In 99 per cent of the cases, investors will commit funds subject to due diligence, which is the procedure of vetting previously described. This also means that the Founders should do their due diligence about the people they contract with. The notion that an organization is trustworthy simply because they’re willing to invest money in a business is a myth and could cause harm.

Finally, the entrepreneurs should realize that once they have made the pledge of funds, the process of due diligence, and the extensive documentation required, a deal might not go through. This is a harrowing experience, but it is an aspect of Fundraising. It would help if you did not get discouraged but should be grateful for the legal knowledge and experience from a failed venture that will surely improve the company once it is successful.