Fundraising is a crucial stage in the life of a company and can significantly accelerate its development. There are four ways of raising capital. Each has its advantages and disadvantages. Each comes into play at a different stage in a company’s development. Here are some explanations from the experts at AURIS Finance, a consultancy specialising in mergers and acquisitions.
Seed funding, for business start-ups
This is the type of fundraising that takes place furthest upstream in the life of a company. Also known as “seed-phase fundraising” (or seed money), it is used to finance the business at a time when the company does not have the necessary resources for its development. It is used to fund salaries, operating costs and equipment, as well as research and development to launch a new product or service. Seed funding rarely exceeds a few million euros.
Capital is provided by specialised funds or individual entrepreneurs (such as business angels). These are often less risk-averse than traditional banks and will accept risk in exchange for hypothetical future profits and equity in the company. Seed investors have a strong right to oversee the running of the business.
Venture capital for a successful market launch
Generally used to finance growth, research and development, marketing or international development, venture capital funding is targeted at companies in a growth phase with strong development potential. Again, the quid pro quo is important. The fund finances development projects in return for a significant equity stake. This type of financing is currently experiencing a sharp downturn. The rise in key interest rates introduced by central banks in response to inflation has had a major impact on the financing capacity of capital ventures. Against this backdrop, only very high-quality projects with strong growth potential are successfully raising funds.
Using growth capital to expand internationally
Development or growth capital is intended for established companies that have already achieved a certain level of profitability and financial stability. It is used at a strategic moment in a company’s life to support restructuring or international expansion. This is the case, for example, of recruitment platform Welcome to the Jungle (WTTJ), which raised €50 million from a pool of investors in February 2023, to finance its expansion across the Atlantic.
Stock market flotation: the final stage
The most successful phase of fundraising is undoubtedly the IPO (Initial Public Offering), which involves raising cash on the financial markets. In exchange for selling part of its equity, the company raises substantial capital. This type of financing is reserved for very large, mature companies. The process is complex and requires, among other things, a financial audit and a registration statement with the chosen stock exchange. Once listed on the stock exchange, the company is subject to significant information obligations towards its shareholders. It becomes a public company and must disclose its financial and non-financial results.
Get the support you need
Fundraising is a time-consuming activity for company directors. AURIS finance experts are specialised by sector. They have in-depth knowledge of the financing market and can help you find financial partners in line with your development objectives.
