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v2rcapital - Are You Ready To Raise Capital For Your...

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Vision to Reality - 1 Are You Ready To Raise Capital For Your Company? It’s a fact. Starting and building a business is grueling. You dream up and design a better mousetrap, hire employees, find office space and build a client base. Plenty of challenges confront you along the way, none of which are considered to be as daunting as raising capital. Say good-bye to the days of pitching investors with the latest and greatest technology ideas while expecting them to write you a check. Say hello to this day and age of the post “dot bomb” era investors who lived to talk about it. That is why it is now more critical than ever to discipline yourself to learn the types, processes and important tasks involved with raising capital for your company. The purpose of this article is to help educate you on how to raise capital. This article will touch on three primary areas for you to consider in determining if you are ready to raise money for your company: 1. What type or stage of capitalization do you need? 2. The importance of the business plan and a sound business model. 3. What are investors looking for? What Type or Stage of Capitalization Do You Need? It is important to understand the type or stage of capitalization you need when talking to investors. Most experienced investors will want to know what type of funding you need, and why. They will also expect you to somewhat understand the stage you are in, so as to qualify how their dollars will be spent. Although there are exceptions, the stages of capital roughly follow the stages of business: Embryonic capital is sought for concept research Seed capital is sought by entrepreneurs with concept and business plan validation Start-up capital is sought by new ventures ramping up for operation Mezzanine or expansion capital levels one and two for growing and mature companies
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Vision to Reality - 2 For the purpose of this article, we will concentrate on the traditional forms of equity and not touch on the traditional and non-traditional forms of debt a company can use. The capital marketplace essentially uses two key principles to guide investment decisions: Risk - measurable probability of losing or not gaining value on a security or capital investment Return - the expected or necessary return on investment (ROI) that a capital investment is expected to provide to an investor to compensate for the risk associated with that capital investment Traditional equity sources are willing to assume relatively higher levels of risk and expect relatively higher rates of return. Traditional Equity Equity investors invest to participate in your company's future value. Equity investors literally "buy" ownership in your company, in exchange for the opportunity to sell that ownership at a later time when the company’s value has significantly increased. Generally speaking, your company has five groups (or rounds) of equity sources to potentially tap: 1. Founders 2. Friends and family 3. Suppliers, business vendors or customers 4. Angel investors and wealthy individuals 5.
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