Fundraising

What is Fundraising?

Fundraising is the method through which a business raises capital from the public, institutions, or investors to fund its operations, growth, or projects.

Financially, it is mostly related to startups or businesses that are raising funds from outside parties in return for equity (ownership), debt, or other financial instruments.

Raising Funds by Companies

Companies raise funds for many reasons:

• Starting a business
• Scaling operations
• Entering new markets
• Introducing a new product
• Managing working capital
• Purchasing other companies

Types of Fundraising

1. Equity Fundraising

Capital is raised through the sale of ownership shares. The investors are part-owners and share the profits and risks.

Examples:

• Angel investment
• Venture capital (VC)
• Private equity
• IPO (Initial Public Offering)

Pros: No repayment obligation
Cons: Dilution of ownership

2. Debt Fundraising

The company borrows funds to be repaid with interest. This encompasses loans, bonds, or debentures.

Examples:

• Bank loans
• Convertible notes
• Corporate bonds

Pros: No loss of ownership
Cons: Regular repayments with interest

3. Crowdfunding

Raising small sums of money from a large crowd through online platforms. May be equity-based, rewards-based, or donation-based.

Example Platforms: Kickstarter, Indiegogo, AngelList

Stages of Fundraising (for Startups)

1. Pre-Seed Stage:

Founders raise seed capital from friends, family, or their own funds.

2. Seed Stage:

Early funding from angel investors or seed funds to create the product and validate the market.

3. Series A, B, C, etc.:

Growth capital from venture capital firms as the startup grows.

4. Exit Stage:

By IPOs or acquisitions, enabling early investors to cash out.

Key Fundraising Terms

• Valuation: Approximation of the company's worth prior to or after investing.
• Term Sheet: Document describing the investment agreement terms.
• Dilution: Decrease in percentage of ownership caused by new stocks issued.
• Burn Rate: The company's pace at which they burn through capital.

Fundraising in India

Startups in India usually raise funds through:

• Angel networks (e.g., Indian Angel Network)
• Venture capital funds (e.g., Sequoia Capital India, Accel)
• Government programs (e.g., Startup India, SIDBI Fund of Funds)
• Private equity funds