Deciding where and how to raise money.

23 aug 2021

Q: My partner and I have self-funded our business so far. We want to raise capital from angel and venture capital investors like my brother has for his business. What are next steps?

A: Before you decide where and how to raise money for your business, we encourage you to ask yourselves the following questions:

  • What are your goals for your business?
  • Do you envision selling the company or taking it public? Or, do you see yourselves passing it on to your family members?
  • What role do you want to play in the future of your business? Do you want to continue to control and manage it, or are you okay with having someone else run the business?
  • Can your business survive in its current situation? Or, does it need an infusion of cash to get to the next level?
  • How much cash is needed?

Then look into potential sources of capital. Know what criteria the capital sources use in assessing a potential investment and make sure your company’s capabilities and objectives align with those of the capital source. By way of example, venture funds require fast track growth and high returns. This puts pressure on the business to scale quickly, and in most cases, means greater risk of failure.

Additionally, and in particular for women founders, venture capital investment is incredibly inaccessible. In 2020, the year of Covid shutdowns, the National Venture Capital Association, with Pitchbook, announced they “saw the highest ever recorded investment, exit and fundraising values.” [1] However, women-led startups received only 2.3% of VC investments in 2020, a decrease from 2.8% in 2019. [2] As such, while women work on building consensus to improve access to the $156.2 billion invested in US startups in 2020, women seriously need look into alternative sources of funding like equity crowdfunding, SBA loans, nondilutive grants and corporate investment. They also need to seek opportunities to be awarded contracts from corporations and government agencies which set aside amounts to be paid to minority and women-owned businesses.