Fundraising is a big part of any start-up or scale-up, especially when the company looks to expand, develop new products, or enter new markets.

At its core, fundraising involves obtaining capital to fuel business growth. This can come from various sources, such as private investors, angels, venture capitalists, or private equity firms.

For finance leaders who have never been involved in fundraising, understanding the basics and the commonly used terms is key.

Let’s break down what you need to know.

What is Fundraising?

In the start-up world, fundraising generally refers to the process of raising capital from external investors. The funds raised are often used to achieve specific goals, such as developing products, expanding operations, or entering new markets.

It is important for finance professionals to understand that fundraising isn't just about getting money; it’s also about ensuring that the business is set up for future success by providing the right value proposition to investors.

The key players in fundraising include venture capitalists (VCs), private equity firms, angel investors, and crowdfunding platforms, all of whom may provide funds in exchange for equity or other financial returns.

Common Fundraising Terms for Beginners

1. Equity Fundraising – This refers to raising capital by selling shares of the company. It’s one of the most common forms of fundraising in start-ups and scale-ups. In equity fundraising, investors get a percentage of ownership in the company in exchange for their investment.

2. Private Equity Financing – Private equity refers to investments made by firms or investors directly into private companies (i.e., not listed on public exchanges). Private equity investors often seek to acquire a controlling stake in the company to influence its operations and grow its value before selling it for a profit.

3. Venture Capital (VC) Fundraising – Venture capital fundraising involves raising funds from VC firms. These firms provide capital to early-stage companies with high growth potential. In exchange, they typically take an equity stake in the company. VC fundraising usually occurs in multiple rounds (e.g., Seed, Series A, B, C, etc.), with each round representing a new stage of the company’s growth.

4. Term Sheet – A term sheet is a non-binding agreement that outlines the key terms and conditions of the investment. It acts as a starting point for the legal documentation that will follow. The term sheet includes important aspects such as the valuation of the company, the amount of equity being offered, and investor rights.

5. Dilution – When a company raises new capital by issuing new shares, the ownership percentage of existing shareholders may decrease. This is called dilution. It’s important to understand how much dilution each fundraising round will cause, as it affects both the founders and early investors. See more details on this topic here.

6. Convertible Loan Note (CLN) – A CLN is a short-term debt instrument that converts into equity upon a future equity financing round. It’s a popular choice for early-stage investors who want to delay putting a valuation on the company until it raises its first significant round of equity.  See more details on this topic here.

7. Cap Table – A capitalisation table (cap table) is a detailed spreadsheet or document that outlines the ownership stakes in the company. It lists all investors, the type of shares they hold, and how much of the company they own.

8. Runway – This term refers to the amount of time a company has before it runs out of cash. Knowing how much runway you have is critical when preparing for fundraising, as it helps determine the urgency and timing of when the next fundraising round should occur.

9. Exit Strategy – Investors will always want to know how they will eventually get a return on their investment. The exit strategy could include options such as an acquisition by another company, an IPO (Initial Public Offering), or a buyback of shares.

The Finance Leader’s Role in Fundraising

As a finance leader, your role in fundraising extends beyond managing the numbers. You are the key person responsible for preparing and presenting financial information to investors. This includes creating accurate financial models, forecasts, and demonstrating how the funds raised will be used to grow the company.

• Getting the Numbers Right: Investors will look at your company’s financial health and future potential. It’s crucial to ensure that all financials presented are accurate, transparent, and aligned with the company’s growth story.

• Due Diligence: One of the major tasks for a finance lead is preparing for the due diligence process, where investors thoroughly assess the company’s financials, operations, and potential risks. Be ready to explain past performance, justify projections, and highlight strengths. Preparing a data room with all necessary documents (financial statements, cap table, contracts, etc.) is an essential part of this process.

• The Pitch Deck: A finance lead should assist in preparing the pitch deck – a concise presentation that tells the company’s story, outlines the market opportunity, and, importantly, highlights the financial projections and fundraising ask. The pitch deck should flow coherently, with financials backing up the narrative of future growth.  I go through this topic in more details here.

Where to Go From Here

Fundraising can be an intimidating process, but with the right knowledge and preparation, you can navigate it effectively. To dive deeper into the ins and outs of preparing for a fundraise, including step-by-step guides and practical advice, my Financial Leadership Fundamentals online course covers all the essential details you need to help your company secure capital.

Whether you’re working on your first fundraising round or preparing for future rounds, understanding the basics of equity fundraising, private equity financing, and venture capital fundraising is the key to your success as a finance leader in a start-up or scale-up.

Want to fast-track your finance career growth?  Check out the steps in our Framework below to get started:

1. Sign up to our next workshop.
2. Work with me in the Financial Leadership Foundations course  that includes monthly Q&A sessions where we can discuss all of your questions and how to apply your learnings to your current role. 
3. Download the Advanced Management accounts course to showcase your skills as a finance leader to the Founder, leadership team and the Board.
4. Book at FLF Career Planning session.