If you’re interested in raising money for your startup company, this article will give you a quick and dirty into how it works.

It’s an investment opportunity

If you ever bought stock in a company, the same concept applies here but on a much smaller scale. You are selling a portion (shares) of your company to one or several investors. This means you need to have a predefined valuation for your business.

There needs to be an exit strategy

Investors are buying into your company in hopes your company will become 10x the value in 3+ years. This means you will need to know where your company is going and what sort of liquidation event you may have (e.g. going public or getting bought out by a huge company).

In theory, a $500k investment should become $5m in 3-5 years. However, most investors know not every company will be a winner.

You are no longer the only controller of the company

Many times investors will want a say in where the business goes. When you sell a piece of your business, you are also (not always) selling the right to be in control of the future of your business. This is not always the case as there are ways you can maintain control of your company. Ideally, the investors that come on are people you like and respect as you will work with them for the remainder of the company life.

Conclusion

This is simply scratching the surface in how raising money from investors work. I hope this gives you a good start into your fundraising journey. If you have anything you want to hear more about, comment down below!