Alternative to the bank loan, fundraising seduces more and more. But few people know how it works and how to concretely carry out its fundraising. Find out everything you've always wanted to know about fundraising in 5 minutes.
What is a fundraiser?
To begin a brief reminder, any project, any company needs funding to develop. You have seen that there are several ways to finance . First of all there are personal contributions – you invest all or part of your personal wealth in your business. You can also ask for help from caring relatives (family, friends …). In the latter case, we talk about "Love Money"
In practice, it is hardly conceivable to develop an entrepreneurial project without any personal contributions . But conversely, it is very difficult to finance a project only through personal contributions. You will not hold more than 6 to 12 months with your personal contributions, except in exceptional cases.
This is the reason why a company also needs external financing . The best known is the bank loan, which involves borrowing from a credit institution. The loan will be recorded in the "debts" portion of the liabilities of your balance sheet. You will have to repay the loan gradually, by paying interest on the borrowed capital. But there is a third way to fund a project: fundraising!
Explained very simply, fundraising involves directly soliciting people who "have money" and asking them to invest in your project, without going through bank intermediation. Investors can be both physical and physical investors as well as legal entities – investment funds. Fundraising is an alternative to bank credit .
Amounts obtained through a fundraising transaction will be included in the equity portion of your liabilities. A fundraiser results in an increase in equity . In exchange for the sums invested, investors obtain equity securities – shares or shares – which give them rights: to participate in the management of the company – voting at general meetings – and to receive dividends if your business makes a profit.
Which investors should I contact?
As we have seen, there are two types of investors:
- Physical investors – the famous "business angels" – cf; an interesting list here .https: //goo.gl/NV589i
- Investment companies, which have the status of "legal persons".
A business angel can bring between 30,000 and 200,000 euros, rarely more . But they bring more than just money. Business angels benefit from a network and expertise that they will share with you if you manage to convince them to sign a deal. You can also contact investment companies called " seed capital funds" or, in English, "seed funds". These are funds specializing in the financing of new projects. Seed funds are sometimes contiguous to incubators. One of the main differences between business angels and seed funds lies in the control. In general, seed fundsare more strict and intervene more in the management of the company than business angel s .
If your business grows, you can take the next step and seek venture capital companies ( Venture Capitalists in English, or VCs ). These companies, unlike the former, invest in companies that have already been launched a little or in companies with very strong growth potential. Venture capital is generally aimed at young companies in the new technology sector, but not only. We will come back to this in detail in a future article.
Fundraising at this type of establishment represents large amounts, at least 500,000 euros . In return for these large sums, control over management is much more restrictive. This is sometimes reflected in the appointment within the company of a manager whose VC has confidence.
It should not be forgotten either that if a venture capitalist invests in your business, it is with medium-term objective to make a gain on its resale. You will therefore have to resell your business in a period generally less than 5 years. If you want to stay in control of your company, this type of actors should be avoided.
To follow, how to make a fundraiser?