Do you want to raise capital and take your business to the next level? Venture capital is an excellent way to accelerate your business’ growth, smash goals and unlock potential.
Venture capital is a form of capital which is raised from a pool of private investors who are seeking to invest in private companies in exchange for equity. These investors are interested in investing in startups with unrealised value, therefore ensuring a return on their investment.
How to calculate how much venture capital is required
While it may be tempting to seek as much capital as investors are willing to give you, it’s important to remember that the more capital you’re given, the more equity you’ll need to give away. The key is to get the balance right so you have enough capital to achieve what you’re setting out to achieve without giving away too large a stake in your business.
To figure out how much capital is needed, you’ll need to calculate your runway. Runway refers to how many months or years your business will survive on funding until new capital can be raised. The longer the runway, the more equity you will need to give away. Typically businesses will look at an 18 month runway which is usually enough time to hit the required milestones without giving away too much equity.
Your accounting firm will help calculate your runway by examining your strategic goals and the funding required to achieve them, cash flow forecast, budget and more. Typically they will come up with three or four different scenarios with varying funding amounts, runways and equity amounts. This will give you some options and ensure you don’t get boxed into offering too much equity or not seeking enough capital.
How to raise venture capital
The key step to raising venture capital is to partner with a venture capital firm. They serve as the conduit between investors and startups.
However, before you engage with a venture capital firm, you should first ensure that your financial governance is in order. This is one of the first things a venture capital firm will look at. To show them that you’re a genuine contender, getting organised and ensuring your finances are under control is a great idea.
You should also determine an appropriate valuation for your startup before you engage with a venture capital firm, so you’re prepared with the correct information. This is because venture capital firms will scrutinise your valuation, and will typically wish to pay the lower part of their valuation range. If you can prove value, this will go a long way to getting you a more favourable result.
Once you have engaged with a venture capital firm, embrace their guidance and follow their recommendations. They will provide you with a list of requirements and their required format, which may include general purpose and special purpose financial reports, accountant’s confirmations, cash flow forecasts and information memorandums. Correctly providing this information helps to ensure the process runs smoothly.
After making a deal with a venture capital firm, you should ensure that you’re on top of compliance requirements. Being compliant may include creating a share register or issuing share certificates.
Conducting these actions may help you raise venture capital, as you demonstrate preparation and organisation to investors.
What is Series A and Series B?
Series A and Series B are the early stages of venture capital funding.
Series A funding is the second phase of startup funding, occurring after seed funding. Therefore, it is an early-stage capital raise for startups. When startups undergo a Series A funding round, they are usually off the ground, and have reached a stage where they require significant amounts of cash to launch or grow. Startups typically raise somewhere between $1 million and $15 million in Series A funding, depending on how the company is valued..
The next phase of startup funding is series B funding. When startups enter a Series B funding round, they have often proven themselves, are smashing goals and are ready to launch into the next stage of their growth journey. Typically, startups will progress to this phase approximately 18 months after the Series A funding round. Although it is still early days for the startup, often investors who invested in the Series A funding round will contribute again for Series B, as there is now less risk due to the growth of the startup. Series B funding tends to average somewhere between $10 million and $40 million, depending on how the startup is valued and how much it raised in Series A.
What makes a company a desirable investment for investors?
Multiple aspects of a company attract investors. Progress towards goals, profitability, financial prudence and cash flow will all play a role. To be a desirable investment for investors, companies need to demonstrate that they are not just burning cash, but are rather self-sufficient. Having a track record of early success and proof that your startup is or will soon be profitable may attract investors to invest in your startup. This is because you can demonstrate that your startup is in a good position and shows potential for growth.
If you’re looking to source venture capital in Australia, Keeping Company can help. We’re experts in this space. We can connect you to the right people to source venture capital and help you prepare for and guide you through the capital raise process. Contact us today to find out how we can help you.
At Keeping Company, we’re not just accountants, we’re business people too. With our counsel, your business can reach its full potential.
We have a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together and ready to help, contact us today.
For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.