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Raising Capital
The document outlines the importance of raising capital for businesses, detailing various types of capital, stages of fundraising, and the necessary qualifications for investors. It emphasizes the implications of dilution and the significance of a well-defined exit strategy, while addressing regulatory requirements and crowdfunding options in Canada. Additionally, the document highlights the need for careful consideration and transparency when seeking investment.
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Raising Capital
- 1. Raising Capital: Fueling YourGrowth Davender Gupta, MS, MBA TheScaleupProject.com April 2021 ©2021 Davender Gupta. All rights reserved. davender@davender.com
- 2. Why Raise Capital? •Money for Execution • Need to initially invest before revenue from operations is sufficient • Leverage other people’s money (OPM) • Dilute risk among investment partners • Get commitment from key partners and lead customers • Access expertise • Give the venture credibility • Attract the Key Resources 2 ©2021 Davender Gupta. All rights reserved.
- 3. Types of capital Non-dilutive (Liability) •Loans (personal guarantees, guaranteed by inventory) • Government grants and contributions • Tax Credits Dilutive (Equity) • « Family and Friends » • Convertible Notes • Business Angels • Venture Capital • Family Office ©2021 Davender Gupta. All rights reserved.
- 4. Stages of Raising Capital Pre-Seed Developing andvalidating the idea Seed Develop MVP, test the market Pre-Series A Initial commercialization to first level of breakeven Series A Commercialization Series B Growth ©2021 Davender Gupta. All rights reserved.
- 5. SCALING Are you thego-to leader in your market? EFFICIENCY Are you organized to deliver your solution effectively and profitably? EXECUTION MATURITY VALIDATION Does the market want your offer? PRODUCT-MARKET FIT DEFINITION What important problem do you solve? PROBLEM-SOLUTION FIT IDEA What is your idea? IDEA GENERATION Stages of Growth 5 Davender Gupta ©2021 Davender Gupta. All rights reserved.
- 6. Financing Chain DEFINITION VALIDATIONEFFICIENCY SCALING A B C BEYOND PRE-SEED MEZZANINE REVENUE FROM OPERATIONS SELF-FINANCING FRIENDS AND FAMILY BUSINESS ANGELS (CONVERTIBLE NOTES) PRIVATE PARTNERS PERSONALLY-SECURED BANK LOAN GRANTS AND CONTRIBUTIONS (PUBLIC) VENTURE CAPITAL (PRIVATE) ADVANCES FROM FUTURE CLIENTS (PRE-SALES) CROWDFUNDING (PRODUCT PRE-SALES) EQUITY CROWDFUNDING INSTITUTIONAL DEBT (BANKS) TAX CREDITS (SR&ED, MEDIA) ACCELERATION GROWTH MATURITY Revenue Streams $ + - SERIES SEED PRE-SERIES A IDEATION ©2021 Davender Gupta. All rights reserved.
- 7. Raising Equity Canada – Governedby the Securities Authority of each province • Québec: Autorité des marchés financiers (AMF) US – Governed by the Securities and Exchange Commission (SEC) • Federal authority Requirement to file a Prospectus before approaching investors • Detailed business plan, full disclosure of financials, risk statements ©2021 Davender Gupta. All rights reserved.
- 8. Prospectus Exemptions • Rule45-106 • Personal connection (family or close friend, business associates) • Accredited Investor • Crowdfunding • “Private Issuer” (less than 50 investors) If one of these categories, then file an “offering memorandum” (simplified prospectus) • All investors are declared to authorities • Autorité des marches financiers • Registre des entreprises ©2021 Davender Gupta. All rights reserved.
- 9. Qualified or AccreditedInvestor To qualify as an eligible investor, you must have: • Net income before taxes of more than $200,000 in each of the two most recent calendar years and expected net income of more than $200,000 in the current calendar year. • Net income before taxes combined with a spouse of more than $300,000 in each of the two most recent calendar years and expected combined net income of more than $300,000 in the current calendar year. • Financial assets, alone or with a spouse, of at least $1 million before taxes but net of related liabilities. Financial assets include cash and bank deposits but not the value of a house. • Net assets, alone or with a spouse of at least $5 million. Net assets generally include all of your assets after subtracting your debt. ©2021 Davender Gupta. All rights reserved.
- 10. Crowdfunding The crowdfunding prospectusexemption allows Canadian companies, particularly start-ups and businesses in early stages of development, to sell securities online though a single portal that is registered with the Autorité des marches financiers. Anyone can buy securities under this exemption but there are limits: • Anyone can invest up to $2,500 per investment but not more than $10,000 in total for all investments under the crowdfunding exemption in a calendar year. • An accredited investor can invest up to $25,000 per investment but not more than $50,000 in total in a calendar year. • Certain very large investors, such as banks and governments, can invest any amount. ©2021 Davender Gupta. All rights reserved.
- 11. Consequences of Raising Capital « Smallerslice of larger pie » Dilution Need to create a Board of Directors Control Dilutes your share of the exit sale Founders usually get paid last Exit Strategy ©2021 Davender Gupta. All rights reserved.
- 12. Exit Strategy How willyou return the investment to the investors? • Raise a larger round • Sell the business • Continue to grow and generate dividends for investors • Go IPO (Public company) ©2021 Davender Gupta. All rights reserved.
- 13. Should you raisecapital? • Raising capital is an important validation • Raising capital is not a substitute for customer revenue • Consider the person before the money • Have a long-term plan • Be honest and transparent • It always takes longer than you plan • Prepare for lots of “no” ©2021 Davender Gupta. All rights reserved.
- 14. There's nothing wrongwith raising venture capital. Many startups are ambitious and are able to deploy large amounts of capital. What differentiates them is their disciplined approach to determining when to spend money: after the fundamental elements of the business model have been empirically validated. - Eric Ries ©2021 Davender Gupta. All rights reserved.
- 15. 15 Davender Gupta, MS,MBA Venture Strategist linkedin.com/in/coachdavender slideshare.net/coachdavender twitter.com/coachdavender davender@davender.com +1-514-448-1894 ©2021 Davender Gupta. All rights reserved.