Article
Preparing your business for a capital raise, including tax considerations
Feb. 13, 2020 · Authored by Chase Murphy, John Melbourne
Preparing for a capital raise and high-level process insights provides a high-level summary of the capital raise process and highlights key factors to consider when preparing for a capital raise.
There comes a time in a business’s operating life cycle where there may be a need to source outside capital. The timing of this need is very different for each underlying business and is typically influenced by key operational challenges that most early-stage businesses are forced to overcome at the onset of their venture (including product/technology development, inventory constraints, hiring of additional human capital, enhancing marketing/advertising, etc.). Unfortunately, there is no definitive reason to how or why these challenges occur and more often than not, the timing is often unpredictable.
When early-stage businesses find themselves at this unique juncture, some elect to bootstrap their way through the adversity while others seek outside investment for cash and/or strategic purposes. Section 2 is designed to offer general insights into the capital raise process while also highlighting various things to consider when preparing to take on outside capital investments.
Please note: there is no “one-size-fits-all” strategy for raising capital with each process being independently unique (typically differentiating from one another on a basis of operational maturity, human capital expertise, sector/vertical focus, technology and cash-flow generation, varying levels of investor interest) and no two outcomes are exactly the same. As a result, the following section is intended to offer high-level insights that are directional in nature and not definitive.
Process and considerations when preparing to source capital
Prior to a company exploring its capital raise prospects, it is important to understand the structure of a typical process, key events that occur at each phase of the process and the level of detail/work involved. Figure 1 provides a hypothetical summary of what could be expected when venturing into a more traditional capital raise process and the underlying tasks that correspond with each stage.
