Always Be Raising: A New Approach to Fundraising
Who said you had to wait years between funding rounds? Always Be Raising is more than a new StartEngine philosophy – it’s the key to growing your company.
Institutional investors, including venture capitalists and private equity funds, among others, are the gatekeepers to capital—the lifeblood of any business. However, these groups often demand specific term sheets. Not many groups or individuals have access to large amounts of capital, and institutional investors are able to leverage that fact to minimize their own risk by demanding specific investment terms.
But why accept their terms at all? StartEngine’s solution is simple: always be raising.
51% of the companies that raise capital on StartEngine follow the tenet of always be raising and have returned to us for a second (or third) raise. We’re no exception. StartEngine just finished our second Regulation A+ offering.
The idea of raising money at all times may sound radical, but it’s actually not so different from how startup funding rounds currently work, just a bit more streamlined.
Rather than raising large quantities of money all at once every few years, you simply raise a little bit every day, keeping an open raise at all times. Here’s why we say companies should always be raising.
Always Raise Funding on Your Terms.
When you conduct a funding round on StartEngine, you have control over the terms of your raise, from your company’s valuation to how much equity you are parting with in that funding round. All you have to do is provide a reasonable basis for your decisions.
If you are always raising, you no longer have to rely on institutional investors or their unfavorable terms. No more giving up board seats, no more devaluing your business.
Always Be Prepared.
Often, founders wait too long to raise their next funding round. They eat up their financial runway until they’re almost out of cash. When businesses become cash-constricted, operations slow down or even pause, and executives waste valuable time chasing down money instead of leading the company.
That desperation can also lead to making concessions on the next funding round to bring in cash more quickly. Instead, if you are always raising, you are constantly building up valuable cash reserves at reasonable terms and are prepared for a rainy day.
Always Acquire New Investors That Become New Customers.
One of the most powerful aspects of equity crowdfunding is that you acquire an army of brand ambassadors and customers. As you raise funds on StartEngine, you can disburse, or close on, the money you’ve already raised as your campaign continues to raise more. You can then use that money to market your campaign to raise even more, and if you have an exciting business update, you can now capture that excitement by marketing that update to drive more investment.
As you bring in more investors, many of those investors then convert into your customers, and some of those will convert into your power users. If you are always raising, you are constantly bringing in new investors to your cap table and simultaneously expanding your customer base, creating a positive feedback loop.
How Does Always Be Raising Actually Work?
Companies can raise capital on StartEngine at any stage for all of their funding needs. Let’s say you sign up to raise your first round on StartEngine. In the first year, you raise $500,000 under Regulation Crowdfunding (which allows for a maximum raise of $1.07M per year).
The next year you come back with a new Regulation Crowdfunding offering with an adjusted valuation to account for the previous year’s growth. In your second raise, you raise the maximum $1.07M under Regulation Crowdfunding. Congratulations!
Upon closing that round, you can then invest about $100K into legal and audit fees in order to launch a Regulation A+ offering and raise an additional $5M (Reg A+ allows for a maximum raise of $50M in a given year).
Compared to the alternative option of having to raise from institutional investors on unfavorable terms with several-year gaps in between funding rounds and limited liquidity options for investors, this is a major win for growing companies and the investors who support them via crowdfunding.
All money raised via equity crowdfunding is in exchange for common shares (or whichever security the company chooses to offer) with no adverse terms for the company. Better yet, fundraising never pauses as the company raises its next target.
For those concerned about dilution – the process by which existing investors’ proportional ownership decreases with the issuance of new shares – consider this: by picking a reasonable basis for valuation and share price, a company can raise $1M at, say, a $10M valuation and then another $5M at $25M without the gravity-defying metrics that typical venture capital investors demand.
The final step of always be raising is creating liquidity. StartEngine is currently working toward launching a secondary marketplace that will allow investors to trade the shares they originally bought on StartEngine. At that point, companies will be able to provide liquidity to their investors by allowing them to sell their shares.
Always Be Raising is the new tool for entrepreneurs to get the capital they need to grow and achieve their dreams. Through this strategy, companies are able to:
- Set their own terms to value their business
- Capitalize on business momentum and leverage updates in real-time for more investment
- Be prepared for difficult times and have cash on hand to act quickly when an appealing opportunity with upfront cost arrives.
- Grow their shareholders by the thousands and create an army of brand advocates
- Retain more control over their destiny
Once you start openly raising with StartEngine, you’ll never look back.