Fundraising

Raising funds is the process by which we get money for our business so that we can spend it on operations, investment, development or any other business purpose. Countless forms are possible depending on what, how long and how much money is needed.

It is very rare for a start-up undertaking, start-up company, and more often for an older company, that it can comfortably to finance all the costs necessary for its operation from its income, be it the purchase of raw materials, the payment of employees, or the realization of long-term investments.

Against this near-ideal situation, even with very profitable operations on an annual level, there may be periods of weak cash flow resulting from fluctuating revenues, when external resource are certainly needed to fulfill obligations. In such a favorable situation, extra funds will only be needed for a while, temporarily. In such a case, it is therefore advisable to examine the possible external fundraising opportunities that the company can use for a given period under given conditions. 

However, there are also situations where it is clear that more resources will be needed for its smooth operation. (For example, when a startup targets a new market with its products and services.) In these cases, the company must increase the level of permanent liabilities, and it is worth considering some form of capital raising or capital raise. 

Raising funds is therefore any transaction through which we obtain external funds, in Hungarian, money or equivalent funds for our business, either temporarily or permanently. This can take many forms, depending on the type and size of the company, why and for what period of time it needs money. 

The most common form is a bank the purpose of the credit, which can be used to achieve several different credit goals. 

When we want to ensure the liquidity of the company, so that we always have enough money for daily expenses, the bank opens an overdraft for our company, that is, it maintains a certain credit line for us. 

Current assets can also be eligible by raising funds, in which case we buy, for example, the raw materials to be used with a current asset loan.  

We can take out investment loan for our small and large developments. In the case of larger companies, it is possible to securitize such a loan, i.e. issue a corporate bond. In this case, the companies, institutional investors or private individuals who subscribed a bond provide the funds for our development.

If we have a product or solution promising the possibility of very fast growth, then an actor in the startup ecosystem can be our partner in financing the growth. We can also contract with business angels, incubators or venture capital investors, who often provide advice and mentoring in addition to money. Many promising small startup have already grown big under the wings of professional venture capital investors, but this also comes at a price: they ask for a stake in the business. 

Few succeed, but that makes crowdfunding a real possibility. In this case, instead of a large financier (e.g. a bank or venture capital firm), many "small investors" pool together the money to implement a new project.

Finally, at the top of the imaginary fundraising ladder is the private or public issue of shares and, in the latter case, even the unlisted on the stock exchange. Issuing issuance of shares and unlisted are very effective ways of raising funds. Real assets can be invested in the operation of a company in this way, but it is also the most complicated method, subject to the most conditions. This is therefore only the field of larger, well-prepared companies with serious plans and who also undertake increased transparency. 

In summary: there is nothing wrong with bringing in external resource, as long as the company can generate the funds and its costs later. On the other hand, it is already a problem if, after raising funds, things do not turn out as planned, and there is nothing to repay the money. In other words, we carefully plan and think things through at every fundraising step.