Raising capital for your business: The pros, the cons and the real-life stories

At some point or another, you’ve likely heard the phrase that a dream without a plan is just a wish. But without money, you probably won’t get very far either. That’s where raising capital comes in.

Whether you’ve just realised that your dream venture will take a lot more money to get off the ground than you previously budgeted for or you’ve had a very clear idea of how much you need to make your dream a reality from the get-go, securing capital will undoubtedly have crossed your mind.

But how exactly do you do that and what should you consider before securing those funds?

Raising capital: the pros and cons

The pros and cons of raising capital will – in part – depend on how you go about securing funds (more on that later).

But in broader terms, there are practical, financial and emotional changes you may need to wrap your head around. For example? Some forms of securing funds may lead to a dilution of ownership and a loss of control. How comfortable are you allowing an outside party partial say in how your business operates? Does the thought of having to pass decisions by other investors make you squirm? These are questions you should certainly ask yourself if you’re considering equity financing – the process of selling a share of your business for cash.

If you’re opting for debt financing – i.e. borrowed money that must be paid back at a later date with interest – you’ll need to consider the possibility of not being able to afford this down the line.

Even if you’re taking on investors, you will at some point need to pay them back. How comfortable are you with having debt and the added pressure that puts on your business to succeed?

As for the pros? Well, some of them are pretty obvious. You’ll have relatively quick and easy access to the funds you need to get your business venture off the ground and may be able to dedicate a bigger budget to things like brand development and marketing which can really make the difference between success and failure. In short, it can ensure you can scale more quickly.

With a cash injection, you can also attract top talent by offering competitive salaries, be able to take advantage of new opportunities as they arise and get valuable feedback and business insights if you take on investors.

Is raising capital right for you?

If you’re having trouble deciding whether raising start-up capital is the right choice for your business, Conor Meaney from the Scale-Up Team at PwC Private has some advice. “Any business owner considering raising capital should consider completing a forecasting exercise against a set of scenarios pulling together financial projections over the next five years,” he suggests.  

“This should give an indication of how the business could perform with, or without, raising the capital and it may ultimately help in landing on a ‘sweet spot’ of how much you should, or should not, seek to raise.”

Perhaps you’ve done some projections and now you have a number in mind. “The greater the capital that is raised at an early or seed stage of a company’s lifecycle, the greater the dilution impact on the founding shareholders,” he says.

“This is on the basis that valuations are usually lower when a company is not profitable or starting and validation for the market is not as clear. Therefore, we often see successful founders ‘bootstrapping’ as much as possible in the early stages of their journey to give them more validation and sales revenues to enable them to raise funding at a higher valuation at a later date,” Conor explains.

On the other hand, companies that are successful in their fundraising ambitions can often get the spark that they need to accelerate their growth and scale.

“As markets become more competitive on a daily basis, companies who receive that injection of capital can often bring their business to the next level and create a gap between themselves and their competitors (and in doing so creating even more value for the founders),” Conor notes.

‘Demanding but empowering’

Still undecided about raising start-up capital? Learn from Shana Chu, founder of Tailr, an Irish software company that uses AI to tackle inconsistent sizing and excessive garment waste in garment manufacturing. Shana studied fashion in her native Waterford, learned website skills at AOL and witnessed the problems afflicting the industry when she was designing and developing protective uniforms worn by Irish firemen on the factory floor in India. In recent months, Tailr raised €700,000 in investment, between Ireland and the UK, to help fund its plans to drive sustainable fashion in the garment industry.

“Raising investment for Tailr was both challenging and rewarding. Not only was I a sole female non-tech founder but facing a downturned investment market and raising between two countries seemed daunting,” recalls Shana, who is an IMAGE Business Club member.

Shana began by reaching out to angel investors (they typically provide start-up capital for a share in ownership) and early-stage venture capital firms – who provide private equity financing. “Each pitch was an opportunity to not only showcase the platform but also to tell the story of my vision and the impact I believed Tailr could make,” she says.

“Securing that first investment was a significant milestone. It was more than just financial backing; it was an affirmation of the hard work I had put in and the potential others saw in Tailr.”

Shana describes the process as a steep learning curve but says it was an empowering journey that helped her understand not just the financial aspects but also the strategic thinking required to succeed in business.

Overcoming bias

“While the journey of raising capital was demanding, it was also a period of immense growth and learning for both me and Tailr,” she shares.

One of the most difficult aspects of the fundraising for Shana was overcoming the biases she faced as a female founder. “It was not uncommon for me to walk into a room and find myself not just pitching Tailr, but also subtly having to prove my capability as a leader in a tech-driven space. This was particularly pronounced in discussions about the technical aspects of our product,” she notes.

One thing Shana found alarming – and that you might want to factor into your decision-making too – is just how emotional the process was.

“The process can feel like a rollercoaster, with moments of high optimism followed by times of uncertainty. To navigate this, I focused on maintaining a balanced perspective, celebrating the small victories, and reminding myself of the larger vision for Tailr,” she says.

How to raise start-up capital

If, at this stage, you’ve decided that raising capital is the right avenue for you, you might be wondering how it’s done. The very first stage is understanding what different kinds of capital are available.

Conor breaks it down, sharing what stages businesses typically seek capital and what kind of investment is generally used for each one.

Pre-Seed: “This is usually early-stage funding that is required to turn an initial project or idea into a business,” Conor explains.

“We usually see these fundraisings being up to a couple of hundred thousand. They often come from a combination of grant and accelerator support schemes as well as ‘the three Fs’: founders, friends and family.

Seed: “We often see companies conducting Seed funding rounds when their business has achieved some milestones and has shown reasonable validation or potential,” Conor says.

“In our experience, founders often pitch to angel investor syndicates, crowdfunding platforms, early-stage venture capitalists (VCs) or a combination of such to raise their seed funding.”

Series A: “At Series A stage we often see companies with established teams and generating fairly strong recurring revenues with the potential for further growth,” Conor explains.

“We have recently seen companies raising between three to five million of funding on Series A rounds and it is often obtained from VCs.”

Series B-D: “These are often significant funding raises and even at times result in partial exits for the founders by selling some of their shareholdings,” Conor says.

“These rounds are often led by private equity, VCs or a combination of shareholders depending on the size of this round.”

And then…

When it comes to deciding which of the above methods is right for you and your business, Conor advises considering what stage you are at in your business lifecycle and how much capital you need to scale.

After you have figured this out, consider whether there is a strategic partner or investor you could get on board.

“Where possible, try and find an investor who is aligned with your goals,” Conor advises. “Have a look at the portfolio of investee companies for different VCs and angel investor platforms. There might be synergy for them to also invest in your business.”

Expert tips

You might feel a sense of trepidation going into this. Raising capital can feel overwhelming and intimidating.

To make the process as stress-free as possible, Conor recommends obtaining as much validation for your business as possible in the early stage to make initial funding such as pre-seed or seed more feasible.

He also advises maximising government support schemes such as grants from various government bodies and Enterprise Ireland schemes and documenting the milestones that your business intends to achieve after raising the funds to show potential investors how they can get a return on their investment.

For Shana, minding your mental health throughout is crucial. “To other business owners looking to raise capital, my advice is threefold,” she says.

“First, know your business inside out—not just the product, but the market, the numbers, and the strategy.

“Second, build a strong support system, including a capable team, advisors, and other founders who have gone through similar experiences.”

Her final piece of advice may be the more important. “Third, don’t underestimate the importance of resilience. You will hear ‘no’ a lot, but every ‘no’ is a step closer to ‘yes’.”