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Blog

4 Points to Consider About Raising Capital for a Startup

Mihir Gandhi

With startups, it’s often never a matter of whether to raise capital. Raising capital is simply an entrepreneurial fact of life in many cases. It can be time consuming, complex and creative, and there are a number of important points to understand about the need to raise capital with a startup.

1. You Don’t Need It All Up Front
Many startups make the mistake of thinking they must secure all of their capital needs up front, or at least early in the life of the startup. This is not true. It can force you to give up valuable equity before you get a good sense of your valuation trend. And it can take your eye off the business, product and service development ball just when you need it most.

2. You Don’t Need as Much as You May Think
More capital is not necessarily a good thing. Too much capital before your startup is really ready for it can skew your decision-making. All of a sudden it may seem like a good idea to hire more help, launch an expensive marketing campaign, or spend more than planned on R&D. If you’re bootstrapping, keeping a firm hand on expenses, and paying-as-you-go, you will likely find that your capital needs are not as tall as you originally thought.

3. A Line of Credit Isn’t Necessarily a Bad Thing
No, we’re not talking about racking up and carrying a big balance. Having an approved line of credit, even one you don’t use, will help ensure bankers (and others) return your calls, and it will establish a trail of credibility.

4. It’s Not a One-Time Event
It is simply a fact of entrepreneurial life. Raising capital is an ongoing, constant state of being. Sure, there are components that can be considered one-time, like preparing your valuation documents and your financial statements, and there are capital-raising activities, like launching a crowdfunding campaign, that are finite events with a beginning, middle, and end. But like tending a healthy garden, raising capital will always be on the entrepreneur’s to-do list.

There are a number of ways to raise capital and many potential sources. The stage and size of your startup, along with your specific capital needs, will help identify a suitable approach. Just don’t discount the value of bootstrapping, strategic partnerships, and opening your own wallet along the way.

When you’re ready to bring on investors, it’s important to know that the SEC requires verification of accredited investors in many cases. VerifyInvestor.com is your premier resource for simple, reliable and confidential verification of accredited investors.