Companies need capital to increase their market shares, develop new products and enhance production capacities. Fundraising activity is crucial to the success of a company. Some companies look for seed funding before they are formed. Most successful companies have done several rounds of fundraising in different stages, regardless of the size of the companies.
Typical Five stages of funding
- Seed Capital is the first source of capital for a startup company. Funds are normally sourced from the family, bank loan, crowdfunding or personal saving. Money will be used in research and development of initial product, company website and company registration.
- Angel Investor Funding helps a startup company to grow bigger. Angel investors are usually individuals who pool their money with a group. With their new capital, a tiny company can scale up, increase production, promote sales and recruit more workers.
- Venture Capital Financing (VC) provides money and network for their investing company. They will assist the company to connect with another company for product enhancement as well as new market segment penetration. Since VCs are investing other people’s money, they will do due diligence, company evaluation, and offer Simple Agreement for Future Equity (SAFE) as well as Convertible Notes (CB).
- Mezzanine Financing & Bridge Loan provides a greater leverage toward expansion to new markets, mergers and acquisitions for a well established private company. The mezzanine investor will be paid back when the company goes public.
- Initial Public Offering (IPO) is a way to introduce the company to the public and collect permanent capital from public investors. The amount of money raised in the IPO can be huge, and over USD 100 million fundraised is very normal. Through the IPO, companies can pay off all their debts and build up the resources to move their business forward.
Special track to public money
If your company can attract a special purpose acquisition company (SPAC) to acquire your business, the merger with a SPAC can bring you public capital at low cost within a short period of time. SPAC is also known as a black cheque company which holds no business but a trust account to pool money from a group of public investors. Those investors let the management of the SPAC to search for a lucrative company with sound fundamental business for them to consider a business combination. When a merger target is identified, an investors’ voting activity will be arranged for the investors to vote and decide whether to proceed with the business combination. Investors, who vote against the merger, can withdraw their own money from the trust account and walk away. The remaining money pool in the trust account will be spent on the share acquisition from the target company. After the business combination and DE-SPAC complete, the target company will normally hold a large portion of the public shares and become the major shareholder of the listing company. The investor pool will hold the remaining portion of public shares of the company. The business combination process usually takes 3 to 6 months, which is a fast track to retrieve public investment funds and go public.
How to attract a SPAC ?
This is the same question as how to become a unicorn company. SPAC represents a group of public investors who are always interested in promising businesses with exponential growth opportunities. Company with a patent of an innovative technology, which is able to disrupt the traditional market and change the old game, will have a higher chance to become an unicorn. However, the size of the company cannot be too big, as most of the SPACs have around USD 200 million in their trust account. If the size of the acquisition business is bigger than the money pool in the trust, additional funding pipeline will be required. Anyway, advanced technology, innovative business model and professional management team are the key elements to become a prosperous company and attract new capital.
What is a successful fundraising strategy ?
Fundraising activity is not only about money injection but also related to value creation with the new capital. In the fundraising activity, management needs to have a good engagement with potential investors, show the best of their company, impress their audiences and convince investors to put money into your company. They have to deliver a clear message of company vision, near term as well as long term business plan, company valuation, and market analysis. So fundraising activity is actually marketing the company and its products to potential investors. A successful fundraising activity will create a wonderful branding for the business and a higher company valuation. A successful management team is more than about how much money they can collect from investors. It is also about how much company value will be generated from the newly injected money and how much income can be rewarded to their investors.
Normsun CPA and ACH have plenty of success cases in fundraising from Government funds, Private funds, Public funds as well as Crypto funds. During the whole funding process, We can assist you in business planning, company positioning and valuation assessment. We will prepare marketing material to achieve the best communication with the public. We will also create an investor deck, deliver the deck to potential investors and engage closely with them. Flow management will be taken care of with professional practices and regulatory compliance. Company will not require additional workload in the funding activity.
ACH mission is value creation through innovation and technology. Welcome to contact us to learn more about effective means of fundraising.
Written by : Ms. Florence Ip