In the fast-moving, innovative world of tech, it is a fact that many, if not most, companies need to look for funding to fuel expansion. And, while everything tech-related is an easy map to unfold and follow for tech companies, the capital raising environment is not as familiar. In this article, we will discuss the conduits available to raise expansion funding, including the best funding options, the most likely investor groups, and the advisors who can oversee the process.
The first step for expansion funding is detailing the amount of funding required, the purpose for it, and the funding options that may be obtained. You may consider well-known and reliable services. For one, Peregrine Private Capital offers 1031 exchange services and DST investment opportunities. The next step to consider is obtaining the services of capital raising consultants. Why are these services suggested? The answers comprise a full package of services to support the tech company with an experienced perspective and an eagerness for prospecting. The following describes the services and packages prepared for a capital raising debut.
Typically, the first response to engaging a capital raising consultancy is, “Why don’t we take care of this in-house?” Yes, this is true. Tech companies are known for lightning-fast flexibility, however, the scope and sequence of raising capital is not one to be undertaken unless one has multiple lengthy days to devote to the process.
The services of a capital raising consultancy include gathering data, preparing a company valuation, assessing detailed projections for future innovation, and preparing materials for the presentation to investors. Again, this process can take weeks or months, depending on the complexity of the expansion and the amount of funding required.
As a result of the processes required, it is not recommended that the owners or major stakeholders remove themselves from the expansion project or ongoing oversight to attend to the commitment of the capital raising project. The services of capital raising consultants, typically within an investment bank, include every portion of the capital raising process through to the presentation rehearsal (they will not present on behalf of a tech company, as it is against the regulations to do so).
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What types of capital raising can support expansion funding? There are several funding options available; the following are the most commonly utilized:
Debt Capital Raising
Debt capital raising is the process of taking out a loan or loans from external sources, such as venture capitalists, to finance a business. This is a popular option for most businesses because it opens the door to a very large sum at fairly low-interest rates.
There are no offers that accompany the loan, including any portion of company control, percentage of ownership shares, or other impediments for the capital-raising company. There are always interest fees attached to the loan or loans, which incentivize the investors to loan the expansion funds.
Equity Capital Raising
Equity financing involves issuing shares to external sources on the stock market in exchange for funding. This type of funding is especially useful, as repayment is not typically scheduled and sometimes not required. The capital-raising company may retain control of the company; however, venture capitalists or venture capital firms, private investors and crowdfunding interests will want shares in the company in return for the investment.
One of the most attractive elements of an expansion loan for a tech company, in particular, will be the interest of investors in obtaining a percentage of the company, particularly if a substantial profit is the result of expansion. In this case, the tech company may have difficulty withholding the shares or percentages of ownership from the offering packages. A capital raising consultancy will assist with this issue and others of a similar nature.
Hybrid (Convertible) Capital Raising
The hybrid or convertible capital raising combines both debt and equity. The positives of both types of capital raising are combined into an attractive package for companies, as extensive amounts of funding may be obtained without issuing shares or taking on excessive debt. There are some limitations to this type of capital raising, but it is a popular option for expansion.
SAFE Capital Raising
SAFE (Simple Agreement for Future Equity) capital raising indicates the owner will take an equity position and convert it into equity in the future. While it is extremely easy to facilitate, it is generally most useful for launching a company as a seed investment rather than for expansion purposes.
Whether raising expansion funds for your tech company is formed through debt or equity capital raising, the process employs expansion, which is the primary focus of the effort. A capital raising consultancy can speed the process, free the owners and key stakeholders to oversee the present company operations and present the capital raise in the most effective and efficient presentation possible. We wish you success!