As you think about raising capital, it is important to understand the actual stages of the fundraising process to help you formulate expectations and create a plan for raising capital for your business.
1. Bootstrap Stage
As your business launches, equity will most likely be raised from your own funds or from friends and family. Monies raised will likely be small, frequent and just enough to fund the next business need or growth opportunity.
In this stage (lasting until your business reaches $500,000 or so in revenue), valuation is hard to determine. Convertible notes will be the best funding vehicle to consider at this point. SAFEs may be an additional consideration but some investors are not as receptive to a SAFE. With friends and family, you may find they will accept a simple loan note with an open-ended term.
As you grow, pitch-slams, community grants, incubators or accelerators, local small angel networks or single small angels also become options. All of these investors are likely investing because they like the product and like you, but primarily because they believe you have what it takes to build a business.
At this stage of your growth, it is important to be building a solid business foundation, focusing on fundamentals that will make your business attractive to more sophisticated investors.
2. Growth Stage
As your business passes $500,000 in revenue, you will find that more funding options open up to you. At this point, you will be seeking funds to cover a certain length of time, which you will have detailed in your forward looking per forma. It is important to use your financial data to plan how often you will need funds, when you will then need to raise capital and how each raise impacts your capital structure.
In this growth stage, lasting until your business reaches perhaps $5-$6M in sales, more sophisticated investors are likely to begin taking an interest in your company. They may be larger angel networks, single private investors, smaller private equity firms or family offices. Convertible notes may still be the most advantageous funding vehicle at this stage, but some investors, especially those for whom it makes sense to play a more active role in your company, will want to take equity.
It is important at this stage to consider what an investor brings to you (i.e., Is this investment “smart money” coming with network connections and/or knowledge that can advise your growth?) This is also the stage for the founder to better learn what investors expect, how to work with investors and the skills and benefits different investors bring to the business.
Crowdfunding is another fundraising option at this stage, and possibly even during the bootstrapping stage, but can be very expensive and time consuming. There can be upfront audit costs, costs to join the network, ongoing tax preparation charges and a percent of the raise that the crowdfunding site takes as compensation. While you may be able to raise much of your needed capital via crowdfunding, there are many small investors behind it, all of whom are often expecting a fast return on their money.
3. Pre-Series A & Series A
By now your business has grown—you have solid, strong business practices, your growth is measured, and your volume, velocity and channel reach are growing. This is when your investment needs to get “Series-ous”—a pre-Series A or Series A round. The size of your raise will likely cover an extended period of growth and operations.
At this stage, you will need a lead investor who can bring other investors to your raise. They will most likely only consider an equity raise. The lead investor will work with you to set a valuation, may want some control on your board of directors, and could even ask you to use or hire specific parties for your finances, operations, ecommerce management, marketing, social media, etc.
This investor may be a large family office, a private equity group or a venture capital team. Arriving at the Pre-Series A or Series A stage is a great milestone in your growth. It also means the number of stakeholders in your business has increased: you will now be simultaneously meeting the needs of your customers, employees, suppliers and investors.
Brandjectory is a fundraising networking platform that connects early-stage food and beverage consumer packaged goods (CPG) businesses to the food and beverage investment community.
The platform allows CPG business owners to network with some of the nation’s best investment professionals at any stage of the capital fundraising process. Brandjectory gives brands access to learning tools, the ability to schedule mentor coaching sessions, and an opportunity to download best-practice CPG investment content from successful industry experts.
Learn more about Brandjectory by clicking here.
