In the ever-evolving landscape of the capital market, raising funds is a critical endeavor for companies seeking to fuel growth and innovation. In a previous article, we delved into various investor types such as friends and family, angel investors, and private funds (VC and PE). In this follow-up piece, we will explore various strategies or processes that facilitate capital raising for entrepreneurs and businesses: corporate capital raises, fund capital raises, EB-5 capital raises, and crowdfunding. These avenues offer diverse opportunities for raising capital and can greatly impact a company's trajectory.
We will also include key definitions at the bottom, to help you navigate the capital markets environment.
Let's dive in!
Corporate capital raises
Large corporations with established operations can leverage corporate capital raises to fuel expansion initiatives or finance strategic acquisitions. By issuing corporate bonds or engaging in equity offerings, these companies can access the financial markets directly. Corporate capital raises allow businesses to tap into the vast resources available from institutional investors and the public, enabling them to raise substantial amounts of capital. These can be achieved through various means, including these two key vehicles:
a. Issuing equity
Companies can raise capital by selling ownership stakes (equity) to investors. This can occur through an initial public offering (IPO), secondary offerings, or private placements.
It is important to highlight that IPOs are a notable milestone for companies as they transition from private ownership to becoming publicly traded entities. By going public, companies gain access to a broader investor base and can unlock significant capital to finance expansion plans, research, acquisitions, and other strategic initiatives.
b. Debt financing
Corporations can borrow funds by issuing corporate bonds or obtaining loans from financial institutions. Businesses essentially borrow money from investors and promise to repay the principal amount along with periodic interest payments. The interest rate offered on corporate bonds is typically influenced by factors such as the company's credit rating, market conditions, and prevailing interest rates.
This is an attractive option for investors looking for stable returns while providing companies with a reliable and long-term source of capital.
Fund capital raise
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Fund managers pool money from various investors and deploy it into specific investment opportunities. Methods for fund capital raise include:
a. Limited partnerships
Fund managers establish limited partnerships where they act as the general partner and seek investments from limited partners. Limited partners contribute capital and share in the profits or losses generated by the fund.
A fund-of-funds raises capital from investors and, instead of investing directly into companies, allocates those funds across multiple investment funds to provide diversification.
EB-5 capital raise
The EB-5 capital raise may not be the most talked about, but that doesn't make it any less significant. It refers to the process of raising funds through the EB-5 Immigrant Investor Program.
This program allows foreign investors to obtain U.S. citizenship by investing a significant minimum amount of capital in a new commercial enterprise (such as real estate development or infrastructure improvements) that creates jobs and economic growth in the country. The minimum investment amount varies depending on the location of the enterprise.
If you are interested in EB-5 capital raising, explore more than 30 opportunities available in our Connect platform. It is essential for investors to conduct thorough due diligence, seek professional guidance, and understand the risks and requirements associated with EB-5 capital raising before making investment decisions. We invite you to visit our website for further information.
Crowdfunding has gained significant popularity in capital raising by providing a digital space for investment seekers (such as entrepreneurs, startups and businesses) to connect with potential investors (individuals or groups looking to invest in promising businesses or innovative ideas).
This channel democratizes access to capital since it allows entrepreneurs to bypass traditional sources of funding (e.g., banks), particularly if they are working on projects that may be seen as risky or unconventional for traditional financiers.
To wrap up, capital raising plays a vital role in the success of companies, giving entrepreneurs and businesses the power to realize their growth ambitions. Understanding the array of available strategies can unlock opportunities and propel new businesses forward. Every path is valuable, but you can select the one that aligns best with your unique goals and sense of direction.
If you're currently on the path of capital raising, don't hesitate to reach out. Finalis’ Connect platform provides networking opportunities that can assist you along the way. Connect with your future investors!
A mechanism where company shares are listed on a public stock exchange or by issuing private placements to accredited investors.
Debt securities issued by companies to raise capital from investors.
- Traditional Bank Loans: Traditional bank loans are a common method for raising capital. These loans involve borrowing a specific amount from a bank or financial institution, which is then repaid with interest over a predetermined period. To qualify for a bank loan, entrepreneurs must typically provide collateral, demonstrate a strong credit history, and present a comprehensive business plan. Many banks offer small business loans specifically tailored to the needs of entrepreneurs.
- Small Business Administration (SBA) Loans: The Small Business Administration (SBA) provides government-backed loans to small businesses in the United States. SBA loans offer favorable terms, including lower interest rates and longer repayment periods, making them an attractive option for entrepreneurs. The SBA offers various loan programs, such as the 7(a) Loan Program, the CDC/504 Loan Program, and the Microloan Program, each catering to different business needs.