Capital Raising: Sources of Capital
In the capital raising process, it is essential to identify different sources of capital and select the type that best aligns with the company’s objectives writes corporate finance expert Miikka Lievonen.
In the capital raising process, it is essential to identify different sources of capital and select the type that best aligns with the company’s objectives writes corporate finance expert Miikka Lievonen.
In the capital raising process, it is essential to identify different sources of capital and select the type that best aligns with the company’s objectives. Capital options can generally be divided into three main categories: equity, debt, and grant-based capital. Each type of capital has its own characteristics and implications for the company’s risk profile and valuation. This blog post examines the features and uses of these three types of capital or funds to consider when entering fundraising.
See also this blog series' previous article on the materials for capital raising here.
Equity capital involves raising funds in exchange for shares in the company. This form of capital brings both benefits and challenges, which are essential to consider in the decision-making process.
Debt capital involves raising funds through loans, where the capital is exchanged for collateral, and the return comes in the form of interest and principal repayments. The position and terms of debt capital can vary significantly depending on the company’s needs and stage of development.
Grant-based capital, often referred to as "free money," is typically provided by public institutions and is often used to finance high-risk projects.
Conclusion
Identifying sources of capital and understanding their characteristics is essential for a successful fundraising process. Equity investors can bring long-term growth support to the company, debt lenders provide more secure funding with repayment, and grants can enable high-risk projects without the obligation of repayment. Each capital option requires careful consideration, and the right choice can help the company grow and achieve its goals.
Author of the blog:
Miikka Lievonen
Director, Grannenfelt Finance
miikka.lievonen@grannenfeltfinance.fi
+358 50 554 5844
LinkedIn-profile
The writer has 10 years of experience working in corporate finance and capital raising related projects. He has advised multiple growth companies in fundraising including Vastuu Group, Beely, P2X Solutions, and Varjo.
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