The ability of an individual to obtain money/funds in order to get the business off the ground or help in the daily operations of the business such as the purchase of materials and payment of wages etc. is known as his capital raising skills.
Other than using up one’s savings, there are usually two types of capital used by companies to fund all such operations: debt and equity.
Debt capital is usually raised by obtaining bank loans, personal loans, credit cards or bonds etc. Equity capital, on the other hand, is raised by selling shares of stock. Ideal capital raising skills, however, require determining a mix of both these types such that it is most cost effective.
Why is capital raising important
Having an idea is useless if one does not have enough capital to translate it into a reality. It is believed that a business is almost impossible to start without money. Yet, ironically enough, you cannot get money until your business is successful enough. Using up your savings is one option but savings will typically run out. Therefore, raising funds through other sources is important in order to finance all the business activities.
Choosing the right sources is, however, the next critical step in the process of capital-raising because it is invariably the determinant of the success and growth of any business. Extraordinary capital raising skills are required for obtaining funds quickly and efficiently, through the most appropriate sources.
How to improve capital raising skills
Following are some tips that might prove helpful for improving one’s capital raising skills:
- Be realistic about the amount of capital required. Optimism is a trait commonly found in entrepreneurs. However, the real world is often quite different than the record sales of the ‘unique’ product as well as the slow competitors that they envision. Therefore, the estimates about required capital should be made as realistic as possible so that enough money can be obtained. Otherwise, you are likely to make the usual mistake of asking for too little money for having a chance at success.
- Determine the value of your company. Since debt and equity capital are both costly in their own ways, and determining the right mix of both is the ultimate way of improving one’s capital raising capabilities, it is important to begin by determining the value of one’s company. This is an important step in determining the cost of new capital when equity additions to the capital structure are sought. Ensure a mix of debt and equity such that greater ownership of the company is retained.
- Network as much as possible. When you seek investors, make sure that everyone in your social circle is aware of the fact that you need money and how much. Find people who have managed to raise capital prior to you, discuss with them your needs, and ask for introductions. Getting introduced through a network is usually preferred by investors as well because it means they have a trusted connection.