A crucial stage in the life of many a start-up, fund-raising enables the company to mobilize the financial resources it needs to get off the ground or grow. This article explains how and why to raise funds! 

What is fund-raising?

A capital raising is an operation whereby investors acquire a stake in a company's share capital. They finance the company's activities in return for a stake in its share capital. 

Companies wishing to raise funds have several options:

• Initial Public Offering ( IPO )
• Seed funding
• Growth capital fund-raising
• Venture capital fundraising
• Participatory financing: crowdfunding

Who can raise funds?

Contrary to popular belief, fund-raising is not just for start-ups. Indeed, companies of any size and in any sector can raise capital. However, investors are interested in the company's future value. That's why companies with strong growth potential and innovative businesses are more likely to raise substantial amounts of capital.

Why does a company raise capital?

There are several reasons why a company may wish to raise funds: 

• Financing growth: raising capital can enable a company to accelerate its growth, expand into new markets or diversify its offering. 
• Strengthen resources: fund-raising also enables the company to obtain the financial resources needed for recruitment or the acquisition of new technologies, for example.
• Accelerate development: raising funds can accelerate a company's development by increasing its marketing visibility or strengthening its R&D policy. 

Raising funds can also enable the company to benefit from new business opportunities, thanks to the network of investors. 

How do you raise funds?

Fund-raising is a major undertaking that requires preparation and patience. Here are the main steps to follow in order to raise funds:

• Estimate the amount to be raised: based on the business plan, you need to make a projection of cash requirements for at least the next two years. 
• Valuing the project/start-up: the relationship between the amount to be raised, as defined above, and the valuation will determine the extent of the investors' stake. 
• Prepare key elements: these help the company in its search for investors. These include the business plan, executive summary and pitch. 
• Find investors and negotiate: now is the time to identify potential investors. If one of them is interested, the company will have to pitch its project in front of them to convince them.
• Finalize and close: when negotiations are complete, the legal documents and financing agreements are drawn up and the fund-raising is concluded.

What is the main disadvantage of fund-raising?

Although raising capital offers many advantages, it also has its drawbacks, or rather one main drawback: dilution of ownership. By raising funds, the company has ceded part of its capital to investors. This results in a reduction, sometimes considerable, in the share held by founders and shareholders.

Fund-raising is therefore an excellent financing strategy, enabling companies to obtain the resources they need to support their growth. However, it is crucial for entrepreneurs to understand how it works, and the advantages and disadvantages associated with it.