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When Capital Raising Should You Always Take the Money?

But you can’t!

Well not always. It depends on how you have planned your capital raising and the law.

In some jurisdictions there are limits to the number of “retail” investors that funds can be received from. This means that even if people want to invest they may not be able to.

However its not all about raising as much funding or equity as you can. What is more important is what you say your are going to do with the investors funds and what you actually do with it. If you get more funding than you actually need then existing shareholders will be unnecessarily diluted down as with the funds not fully utilised the returns have to be spread among more people.

If you dont get enough funding to match your requirements you may risk going out of business and losing the existing shareholders funds.

Thats why funding requests are often broken into rounds at ASSOB. Round 1 funds can be received, invested, objectively looked at then on to Round 2 if need be. Same with Round 3. While amounts differ depending on requirements a good start is …

  1. Round One $300,000
  2. Round Two $300,000
  3. Round Three $1,400,000

But if you take it, make sure you can use it profitably for investors!

That means in your “Use of Funds” in your Offer Document or Information Memorandum think hard. How much money can you really get by with in the next say 3 months? Put that in Round One and detail how you are going to spend it. Then its on to Round Two. Round 3 often involves more “professional” or “sophisticated” investors so they will be looking very closely at what you are actually going to use their money for and the chances of them getting a good return on it. Again some well though out detail in the Use of Funds will help.

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