Fundraising is not only for start-ups. SMEs and SMIs can also apply to finance their growth or accelerate their development. Any type of company of any size can resort to fundraising, provided that the company is in full development.
It can be difficult to find investors as an SME or a TPE: but with a solid enough development project, entrepreneurs can convince business angels, venture capitalists, and investment funds to invest in their project. Fundraising is a contribution to the company's capital. It is also called financing or external contribution. Find out why you should raise funds, the advantages, and the disadvantages.
Who is fundraising for?
Fundraising is mainly for companies with strong development potential and innovative companies. They are generally used by start-ups thanks to seed capital that allows them to finance the start of their activity. But that's not all: VSEs, SMEs, and SMIs can also apply to raise funds.
Even if it is preferable to favor non-dilutive financing, fundraising is a powerful growth lever. SMEs and SMBs with a convincing development project are able to raise funds. The objective is to finance the company's growth over the next five to seven years.
Why raise funds for an SME/ETI?
If an entrepreneur or manager of an SME/ETI presents a solid project with strong development potential within a 5-year timeframe, it is possible that he or she will find investors and financing fairly quickly. To finance a major investment, fundraising can contribute to the company's growth.
Whether it is to invest in research and development or to have a financial margin, fundraising is accessible to all companies. At the start of an activity, the constitution of a seed capital can finance the start of the activity. During the course of the activity, it is possible to constitute development capital, which will allow the company to accelerate its growth.
The advantages of raising funds for an SME/ETI
The main advantage of raising funds is that it provides enough money to move forward on a project. These funds will enable entrepreneurs to finance all the growth stages of their development project. This type of financing does not have to be repaid: it is therefore a non-negligible advantage for improving the financial situation of the company. Depending on the amount granted, several projects can be financed.
In addition to providing money, investors also contribute their know-how. Most of them are former entrepreneurs who want to invest in a company with high development potential in order to obtain a short-term capital gain. These entrepreneurs can provide valuable advice on the management of the SME/ETI. High-profile investors can also provide good media coverage for the company raising the funds.
Disadvantages of fundraising for an SME/ETI
Raising funds is not a snap. Negotiations can take several months, or even almost a year in some cases. You have to take into account the preparation time, when entrepreneurs give everything they have to defend their project and show how it will bring real growth to the company. Then you have to find the investors, convince them and start the negotiation phases.
Fundraising means dilution: investors become shareholders in the company. Everything depends on their percentage of participation in the company's share capital. They will therefore have a say in the management and administration of the SME/ETI, especially if their shareholding is substantial. It is therefore important to pay attention to the amount raised, so as not to give away too many shares in the company.
Fundraising is not only for start-ups in seed status. It is also possible for SMEs to use this type of financing to develop their business.