We weigh up the pros and cons of each approach
There are often many obstacles that stand between company growth and access to capital. One is the sheer amount of decision making involved in the fundraising process – which is the best route to generating more money?
Most businesses lack the knowledge and confidence needed to progress the capital raising process. Often, they stumble early on, because one big decision that needs to be made up-front: whether to raise funds privately through a selected group of invite-only investors, or open up funding rounds for public investment.
In order to make this choice, companies need to understand the pros and cons of both public and private fundraising. This is something WeOwn understands innately, and we’d like to share some of our insights…
Raising capital without complexity
The fundamental problem today is that the most common current methods for generating financial resources – IPOs and private fundraising – are complex, costly and time-consuming. They often involve the need to source, introduce and co-ordinate multiple parties, and the amount of red tape means the issuance process can take months.
The good news for growing businesses is that investment is changing. New technology is enabling companies to create and issue their own digital assets in order to attract investors and raise capital.However, even with the easiest to operate platforms, organisations will still need to decide whether their offer is launched publicly or privately.
It’s important to note that the route you take doesn’t necessarily dictate whether you run a public or private offer. You can do both whether you choose a traditional investment model, or a digital asset marketplace; it’s only the process for raising capital and distributing shares that differs.
Why choose to raise capital publicly?
The number one reason companies choose a public fundraising round (also known as a retail offer) is the sheer volume of potential investors it provides access to. Rather than having to create connections and nurture a small handful of interested parties, there are thousands of people with money in their pockets, looking for the right opportunity.
Casting the net wider has a wider benefit than just investment. Attracting new shareholders creates the potential to convert investors into customers, which is the holy grail for most businesses. It’s also great publicity, generating buzz and raising your profile.
But while this prospect is exciting, the offer has to be REALLY attractive to catch the eye of someone who has possibly never even heard of your company. A good digital asset marketplace will help businesses to build a profile page and structure their offering, to stand out in a busy market.
When competing against every single other company trying to raise capital, it’s easy to get lost in the opportunity landscape. Therefore, many companies add multimedia elements such as videos and graphics to their profile, and link to their social channels and insightful documentation to capture investor interest.
Public offers also have legal and practical consequences. The process is very tightly regulated, with a greater level of due diligence and compliance involved, as there are official bodies designed to protect the interests of investors (and rightly so).
Whether you’re launching a traditional or a digital asset offer, there are typically two regulatory frameworks that public offers must adhere to – the legislation utilised for IPOs, or crowdfunding regulatory approval. Crowdfunding legislation tends to be less strict, however there is a limit on the total amount you are able to raise.
These considerations don’t necessarily mean that companies shouldn’t raise funds publicly, but it’s important to work with a digital asset marketplace that will shoulder the legislative burden, and help you to manage the costs and practicalities of launching a public offer.
It’s important to work with an expert who understands the market inside-out – rather than just helping you to fundraise without providing any further support or added value benefits. This is a topic we discuss in more detail in our blog post on why you should beware issuance only platforms.
Why choose to raise capital privately?
The other option for growing companies is to secure funding through private investors. While the sheer volume of potential shareholders is smaller than with a public offer, there is a definite ‘quality over quantity’ scenario at play.
By leveraging existing connections, businesses create opportunities among an audience that is already engaged with their brands. It’s easy to convince them why they should invest – so long as the offer is compelling. Plus, they are more likely to put in a larger sum up-front.
There’s also a longer-term benefit to nurturing an educated audience. Companies need a continuous supply of capital, and private investors offer a stable foundation for nurturing long-lasting relationships. However, this does not mean that raising capital is easy.
Building relationships can be a challenge for companies, or you may need to work with a third party who can make connections on your behalf. And because of the size of stake they are taking in your business, private investors can be quite demanding. Therefore, you need to consider how you will engage them not just to participate in the offer, but throughout the lifecycle of their investment.
The suitability of private investors also needs to be formally assessed, so interested parties must go through an accreditation process to demonstrate their credentials and net worth – whilst you make sure they also understand the risks of investing.
Another reason that organisations choose to raise capital privately is the level of executional flexibility. As the group involved is invite-only, companies have more regulatory freedom – however there are still requirements that need to be met. And this smaller audience means companies need to work very hard to convince interested parties; the importance of getting each prospect over the line is much more critical than with a public fundraising round. And even if they participate, the deal takes place behind closed doors.
As with the public route, creating a valuable offer is key to making private fundraising a success. Which platform you select will influence how eye-catching your business profile is, and whether you’re able to nurture investor commitment beyond primary issuance.
Is there a ‘best of both worlds’ solution?
The good news for growing businesses is that raising capital does not necessarily mean a straight choice between going public or staying private. Some of the leading digital asset marketplaces enable you to explore both options, managing all investors via a central online dashboard.
Choosing a combination of the two can provide a ‘best of both worlds’ solution to raising capital. Starting with a private offer enables organisations to leverage their engaged audience first, and perfect their profile and offering. It also ushers the investment heavyweights through the door first, bringing in the bulk of the capital needed to expand and innovate.
With the offer optimised, companies can then open the doors to public audiences, raising smaller amounts among new investors that can potentially convert to customers – and benefit from the PR value in the process.
The key to making this model work is to partner with a digital asset provider that not only offers both options, but also understands the complete process. The right platform will take away the legal, compliance and administration burdens that stop so many companies from raising capital, enabling businesses to create long-lasting relationships with their investors.
WeOwn’s Digital Marketplace empowers growing companies to raise capital through both public and private offers. Through our digital asset marketplace, your business can raise funds in a matter of weeks, and easily manage your entire investor relationship through our online hub.