Any economic entity, whether mature, emerging, or start up, in the stage of reconstruction or diversification, may seek external funds.
Fundraising intends primarily high-potential companies and innovative businesses. Investors are interested in the future value of the company. The objective is to realize a capital gain on the future resale of shares.
To start a project (seed capital)
Seed capital consists of raising funds to start a business or launch a service or product.
In fact, the first investment fund is not the largest. In fact, the company’s value is still weak compared to its future potential. Here, it is a question of obtaining the financial means that are necessary to carry out a project.
To develop a project (development capital):
Development capital consists of raising funds to increase the company’s growth and continue its development. This kind of fundraising is often used to improve the company’s products or services, hire teams, and communicate with clients.
The development capitals have larger amounts than seed capital. The valuation that the company has already obtained should allow the partners to limit capital dilution.
Why should I undertake a fundraising?
The realization of a fundraising must be considered only when it is really necessary to develop the company and achieve its objectives. There must be a real need for financing. Without fundraising, the company cannot achieve its goals within the desired time frame.
In return for raising funds, founding partners reduce their share of the company’s capital: less voting rights at meetings, less dividends, less share of capital gains in the event of a sale.
The influx of investors into share capital must be compensated for by the potential for development of the new means they bring to the company.
The realization of a fundraising should not be considered as an indispensable step to start a business. Its interest depends on the activity of the company, its needs, its objectives, and the means it already has.
What are the benefits?
The main advantage of fundraising is that investors bring new funds into the company. The invested money must not be repaid, it is a capital contribution.
In addition, fundraising can also allow a company to benefit from new skills and employment opportunities through the network of fundraisers.
The main disadvantage of fundraising is the dilution of shareholders’ participation following the entry of new shareholders into the company’s share capital. The old shareholders see their percentage of participation, and therefore their rights in the company, decreases after the transaction.
Second, the new investors may have a different view with the old shareholders. The objectives are not necessarily the same and this is a potential source of tension.
Contribution of CFR AUDIT in the fundraising?
The main steps in the execution of a fundraising campaign led by CFR AUDIT:
- The preparation of the fundraising project.
- The search for investors to negotiate the terms of the fundraising,
- Conclusion of the fundraising process.
The preparation of the fundraising project
Preparing a fundraising involves:
- Feasibility justification: why does society need to raise funds? What is the project?
- Company development: to raise funds, the company must be valued.
In order to attract investors to join the project, it is necessary to explain to them the value of financing the investments: what are the objectives of the operation? What is the amount sought? How will the funds be used? The implementation of a business plan makes it possible to structure the process.
This work must be done with the utmost care because the investors involved in fundraising are knowledgeable professionals. A solid and justified project is essential to the success of the operation.
Then, the evaluation of the company is crucial for the future distribution of the share capital between old and new shareholders
Searching for investors and negotiating with CFR AUDIT
To raise funds, you obviously have to find investors and convince them to take a share. The work is carried out in two stages.
First of all, we have to find investors and convince them to join the project. What matters to the investor is the return on investment that he can expect on the future sale of his shares. During the negotiations, a convincing presentation of the project is essential.
Then, it is necessary to agree on the evaluation of the company and the legal aspects of the operation. What is the extent of the rights that will benefit investors in return for their contributions? Once an agreement is reached, a letter of intent is required.
Investment advice and corporate finance in Tunisia
The investment decision is becoming more and more a complex process that should be planned and designed. In addition, the closure of the loop diagram is always a challenge to overcome… That is why, CFR gives you access to a wide range of scenarios that are carefully adapted to the investments to be made.
When negotiations result in an agreement, the fundraising can be finalized. Legally, the transaction results in an increase in share capital by issuing new shares. To obtain a new share, the investor pays the nominal amount of the security as well as a share premium, intended to offset the difference between the nominal value of a security and its current value.