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What’s Involved In Capital Raising?
So you’ve started a business and you’re looking to raise some capital in 2025. Capital raising – whether it be from friends and family or from institutional investors – can provide significant growth opportunities if your business is poised to take the next step forward.
Capital raising remains a complex process, from designing an investment structure and negotiating the terms of the deal, to preparing the legal documentation and completing necessary corporate actions. At Sprintlaw, we can guide you through your options and help safeguard your company while ensuring your business goals are met. For additional insights on legal document preparation, do check our comprehensive contracts guide.
When Should I Start Thinking About Capital Raising?
It is important to appreciate that once you start raising capital, additional stakeholders become involved. Although the process can seem daunting at first, with the right legal advice it often proves extremely fruitful. In today’s market, planning ahead and beginning your preparations in advance of your funding round can streamline negotiations and regulatory compliance in 2025.
Businesses that typically benefit from capital raising include:
- High-growth businesses: Ventures with significant scalability attract investors eager to back future leaders. Learn more about protecting your interests by reviewing our contract essentials.
- Businesses requiring substantial funding: Equity financing can sometimes offer a more advantageous alternative to conventional debt, especially when large sums are needed to drive expansion.
- Entrepreneurial ventures with flexible timelines: Given that equity funding can be a longer process, businesses with less urgent funding needs are well suited to this approach.
The Different Types Of Capital Raising
Debt Raise
Debt capital involves borrowing funds that must be repaid with interest. Common forms of debt financing include loans and bonds. Although this method can provide rapid access to funds, the obligation to pay interest – regardless of your company’s performance – remains a considerable commitment. For a deeper dive into the negotiation of loan terms, see our contract signing guide.
Equity Raise
Equity capital is raised by selling shares of your company. Rather than requiring repayment, investors receive returns in the form of dividends and the anticipated increase in share value. It is crucial to formalise the relationship with investors by using a robust Shareholders Agreement, ensuring clarity on decision-making and exit strategies.
Convertible Note Raise
Raising capital through a convertible note is a hybrid method where the initial investment is structured as a loan that can be converted into equity at a later stage – typically during a subsequent funding round. This approach combines the benefits of both debt and equity financing. For further information on convertible instruments, check out our guide on convertible notes.
SAFE Raise
A SAFE (Simple Agreement for Future Equity) raise simplifies the process by eliminating the debt element. Under a SAFE arrangement, an investor provides capital in exchange for the right to convert that investment into equity upon the occurrence of a pre-agreed trigger event, such as a future investment round. As interest does not accrue and the cash is not repaid if conversion does not occur, SAFE instruments offer an attractive and streamlined option for startups in 2025.
What Documents Do I Need For Capital Raising?
The required documentation varies depending on the type of capital raise, ensuring both your interests and those of your investors are protected. Typically, initial terms are agreed upon via a short-form Term Sheet which is then followed by detailed, legally binding documents.
Debt Raise
Loan Agreement – This document outlines the details of your borrowing arrangement, specifying the principal, interest rate, repayment schedule, and any penalties for late payment or default. For clarity on these provisions, our contract guide provides useful pointers.
Security Agreement – When a loan is secured by collateral, a Security Agreement is indispensable. This agreement grants the lender a security interest over designated assets, allowing them to claim these assets in the event of default. In 2025, the increasing use of digital platforms has made it easier and quicker to register and manage these agreements.
Equity Raise
Share Subscription Agreement – This agreement formalises the investor’s commitment to provide funds in exchange for a specific number of shares at an agreed price.
Shareholders Agreement – Essential for delineating the rights and responsibilities of shareholders, this document governs decision-making procedures, dispute resolution, and exit mechanisms as your business grows.
Convertible Raise
A Convertible Note Agreement sets out the terms under which the investor’s loan will convert into equity, including conversion triggers, discounts, and valuation caps. Such clarity is crucial to balance investor risk with your company’s growth prospects.
SAFE Raise
A SAFE Note Agreement details the cash investment that will convert into equity upon a predetermined trigger event. As these instruments do not incur interest and do not require repayment if the conversion event does not occur, they provide a simpler alternative for early-stage funding. The streamlined nature of SAFE agreements has made them increasingly popular in 2025.
With the advent of digital technology, many of these agreements can now be signed electronically, expediting the entire capital raising process. If you’re uncertain about your documentation needs, our contract review service is available to ensure everything is in order.
Need Help With Raising Capital?
Engaging a lawyer early in the capital raising process is a wise strategy, especially given the complexities and risks involved. At Sprintlaw, our experienced startup lawyers are well-versed in current funding practices and can offer tailored advice on navigating the increasingly digital landscape of finance in 2025.
We can assist you from legal consultations and drafting your agreements to negotiating deal terms that align with your business objectives. For further support, explore our Capital Raising Consultation service and our detailed guides on intellectual property as well as contracts for startups.
As the funding landscape evolves, particularly with the advancements in digital transaction management and regulatory updates in 2025, staying informed and prepared is more essential than ever. Whether you opt for debt, equity, convertible notes, or SAFE instruments, we at Sprintlaw are ready to guide you safely through every step of your capital raising journey.
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