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10/09/2018
A funding journey begins with an acknowledgement to undertake an investment, followed by due diligence on the options available. The typical stages in an investment cycle include seed, early, series A, mezzanine finance and, ultimately, an exit. Here’s our brief guide on the stages of funding for entrepreneurs.
The reason for pursuing a debt-only investment is that raising debt is less complicated:
But, there are negatives:
Debt is usually secured on the assets of the company and/or by personal guarantees from the founders. The legal advice around taking on debt normally focuses on the covenants in the debt instruments, the effect of breaching these covenants and the nature of the security required by the lenders.
The advantages of pursuing further equity investment include:
However, with equity investment, the loss of control can feel significant. The trade-off between financial gains versus the loss of control is often a big consideration for founders. That said, the reality is that investors will generally only interfere with management decisions if the business is not progressing in accordance with its plans.
The best piece of advice I can give is to have defined business objectives. A clear sense of the type of exit strategy you wish to pursue will, to some extent, dictate the best funding option to fulfil your objectives.
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