6 ways to raise capital for your STARTUP

One of the most crucial steps when starting a business is to raise initial capital. Having no capital shouldn't stop you from executing your big idea. On the contrary, it's a big challenge, but it's not impossible. There are many ways to raise capital and today we will explain several ways to do so along with several Hacks from our experience.

1. Debt

Indebtedness will always be a good option, you just have to repay that money within a certain period and with interest.

• Advantages: You will not give up ownership or control of the company.
• Disadvantages: Whether you're doing well or badly, you'll have to pay that money. In addition, too much debt could lower the valuation of your company, and it could be the case that by issuing shares you obtain less favorable results.
• Recommendation: Debt works if you have good cash flow (Cash Flow) and if you don't commit significantly.

2. Shares (Equity)

In this type of financing, you transfer ownership of your company in exchange for capital, under certain terms and conditions agreed with the investor.

• Advantages: You won't have to pay if you're not generating profits; you can attract strategic partners to help you; and it promotes greater formalization of STARTUP.
• Careful: You'll have to be careful with your strategy Equity so as not to lose control of the company and to protect both founders and investors.
• Use: They are generally identified by series of actions (Series A, Series B, Series C, etc.), until they are needed.

3. Convertible Note (Convertible Note)

The Convertible Note is a simple contract in which the debt will have the option of turn into actions for the investor if certain conditions are met.

• Conditions: They can range from: acquiring 1,000 more users for the application, generating more than $\ $500,000.00$ in revenue or even increasing followers on Instagram.
• Mechanism: If the established conditions are met, the capital provided by the investor can be converted into shares. Otherwise, the investor can opt for the return of their money along with interest.
• Use: This form of funding is a great option for STARTUPS in early stages (Early-Stage).

4. SAFE (Simple Agreement for Future Equity)

It's a new instrument that was practically invented by one of the best accelerators in the world, “Y Combinator”.

• Mechanism: It's an investment mechanism, but unlike a Convertible Note, It does not generate interest.
• Function: It allows you to receive investment and set the number of shares that the investor will receive at the time of a subsequent investment round.

5. Crowdfunding (Collective Financing)

Collective Financing is about obtaining resources from a large group of individuals. It can be equity with shares (Equity-based) or without actions (Reward-based).

• Advantages: There are several platforms that give you all the facilities, for example: Play Business, Founder, Donor, Kickstarter, etc.
• Disadvantage: You will have to generate a good strategy of Marketing for the campaign to be a success.

6. Accelerator

An acceleration program, more than money, will also support you with advice, mentoring, bonding and investment. However, on many occasions they request a significant part of the company in return. It will be good to review the terms and put them in the balance.

Whichever route you choose, always keep control of your company. Plan how much control you can give up and where your limit is. Funding is a big challenge, but it's not impossible.

Do you have any questions left? In RMG LAWYERS we specialize in Startups and we are happy to support you, send an email to l.manzano@rmgsc.com.