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The process of fund raising stands true for every level and type of business in this challenging global market.
Business knowledge, common sense, intuitions, practical experience, and the box idea, all are equally important in the fundraising process.
The standard mechanical process of fundraising stands still, but one has to think innovatively to make the most out of the fund collected.
Startup and experienced companies both go through this process for the effective running of the business setup and to meet the challenges in the market.
The basic steps which help in raising the fund for your dream business project are discussed:
The legal structure of the business setup should be set right before opting for fundraising. Investors and other financial organizations will check the legal structure then decide on the future investment propositions.
Moreover, proprietary companies, partnership companies, and companies with limited liability partnerships can’t opt for the fundraising process. Private Equity and Venture Capital can invest their money in Private limited business units.
IPO or Initial Public Offering invests in the public sector business units. Therefore, the legal structure will decide on the investment type for the owners and the investors.
Market research is important before starting the business because of the number of factors. The market size or the number of customers for the product and service decides on the reach of the business unit.
The unit should also check the problem and the need of the customers to enhance the growth in customers and improve customer service.
Moreover, the revenue earned, break-even, profitability, and the return on investment are also serious matters which should be taken care of.
Chartered Accountant of Finance professionals can help you access these factors and then prepare strategies to reach the goal.
The business should be able to stand the competition that is already existing in the market by planning the vision, future plan, staff, and technology.
All these are the base of a sturdy and flexible business setup and effective arrangement of these will definitely bring name and fame to the setup.
The investors would be eager to check your budget sheet, to know how you will handle the finance that is being invested. There are numerous expenses in the business- manpower, payroll, marketing, legal, training, HR, technical, etc.
The invested amount should be carefully distributed in these heads for the efficient running of the business unit. Moreover, how you will use the money, how much money is needed, what is the budget list, how to optimize the budget, how more work can be done using less capital, etc.
All these answers are very important to convince the investors for fundraising. Furthermore, also show your investment as personal savings in the business unit, this will act as a positive note to the investors.
The type of business and the market of your idea will help you determine the right investor. Some of the basic markets are- Pharma, clothing, education, e-commerce, technology, FMCG, B2C, B2B, etc. There are specific investment bankers for all these markets and businesses. Therefore, once you hit the right investor, raising the fund will be easier.
The presentation will help you gain the confidence of the investors. The presentation should offer a transparent view of fund handling, return on investment, and customer handling. The investors will be eager to know your business proposals and the way you will manage each head.
The presentation should give a clear view of your ideas and their future growth scopes. Information related to the team, product, technology, business model, competitive landscape, need for the fund, current financial status, market size and opportunity, shareholders, etc. will cover the basics.
After preparing the pitch, the individual should plan how to present himself, the ideas, team, budget, manpower, etc. to the investors.
Moreover, communicating with the investors through online platforms as well as in the meeting rooms should be carefully handled for a positive response.
The budding business unit should never be too confident about the competitors, in front of the investors. The presentation should be simple, clarity should be maintained, there should be no scope for unrealistic and unprofessional projections.
The exit strategy for the investors should also be ready with the startup for future goals.
Both the investors and the owners should strike a balance in terms of the term sheet about the investment. This term sheet should contain the amount being invested, the status of ROI and shares between them, the time period for investment, and the power and responsibilities of both parties. Therefore, this sheet contains the final outcome after all questionings and negotiations from the side of the investors.
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The investor before investing the amount will verify each and every detail that you have shared about your company. The trust but verify strategy always stands in case of business and financial relations.
This is to make sure that the investor gets a proper return from the investment. The investors will understand your business idea, model, and process.
Moreover, he will also check the finance details- balance sheet, profit and loss statements, cash flow statements, loan and revenue status, etc.
The company should ensure transparency in all matters before the due diligence process to maintain trust and faith.
There are several tools in the hand of the investors to check on the financial and legal status of the company- growth ratio, margins, inventory turnover ratio, debt to equity ratio, current ratio, etc.
Relations with the bank, Registrar of Companies, promoters, shareholders, etc. also matters in this verifying process.
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The term sheet is the summary, but the Shareholder agreement is the complete book that contains all the details of both the parties in this financial relation.
The shareholder’s agreement contains- rights, duties, responsibilities, jurisdiction, arbitration, and event of default.
The share subscription agreement consists of the number of shares, price of each share, and company stake. These agreements help to maintain transparent relations and avoid blame games in the future.
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The business should always respond back to the investors regarding the reports, growth, data or MIS reports, new projects, fund handling, etc.
Moreover, the business unit can also involve in relationships with other new investors for growth prospects in the future. Good terms with the investors offer a positive look of your company in the market.
The steps in the fundraising process are valid for every business unit. Handling these steps with efficiency and a unique attitude will improve your scope and future prospect.
Therefore, plan and execute your idea after considering the basics to avoid hazards and tensions in the long run.
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