When leaders talk about growth, they’re often really talking about capital raising. At some point, internal cash and modest credit lines stop being enough, so companies raise capital from external investors and lenders to pursue their plans.

Raising capital, at its core, means bringing in money from outside the business — whether that’s new shareholders, lenders, or a mix of both — to get a company off the ground, fund the next phase of growth, or repair a stretched balance sheet. It’s not a side issue: in an environment where roughly a quarter of new firms close in their first year and about half don’t make it beyond five, misjudging how much funding you need, or when you need it, is often what turns a manageable problem into a failure.

This article walks through the main capital raising options and a step-by-step process from planning to closing, and shows how a virtual data room can help make your fundraising journey more efficient and secure.

Essential considerations before raising capital

Before you send a deck to potential investors, step back and define why you’re raising capital and what success looks like.

Control and ownership

Every form of raising capital trades some control for cash. You need to be explicit about:

  • How much of an equity stake you’re prepared to sell
  • Whether you prefer a broad investor base or a highly involved single investor
  • What board rights and vetoes you are willing to grant

If long-term control is a priority, you’ll lean towards funding options with less dilution (for example, debt financing or government grants) and structure investor rights carefully to protect investors while preserving operational flexibility.

How much capital do you actually need?

Raising too little forces a rushed bridge round; raising a significant amount too early can mean unnecessary dilution. Use disciplined financial models to quantify:

  • Product development, hiring, and operating expenses
  • Cash needs for specific growth plans and growth opportunities
  • Buffers for macro shocks and other external factors

Most financial professionals recommend planning for at least 18–24 months of runway. Seed funding typically aims to provide 12–24 months of runway, depending on your burn rate.

Timeline and market conditions

From the first planning meeting to funds in the bank, a full raise often takes six to twelve months, sometimes longer for complex funding rounds. Market cycles matter: PitchBook–NVCA data shows global venture capital funding fell from about $531 billion in 2022 to roughly $345 billion in 2023, making it harder to access funds on founder-friendly terms.

That doesn’t mean you should pause — but your strategy and valuation expectations must reflect the reality of the market.

External advice and support

Early engagement with:

  • Corporate finance advisors and investment bankers
  • Lawyers experienced in securities regulation and compliance processes
  • Fractional CFOs or other financial experts

can significantly improve deal quality, especially for mature companies or deals involving mergers and acquisitions.

Quick pre-planning checklist

Before you formally start raising capital, make sure you are able to answer complex questions — like the ones below:

  • Why this is the right moment for capital raising in your company’s journey
  • How much expansion capital you need and what specific milestones it will fund
  • How much control you’re willing to give up to investors
  • What support (networks, sector expertise) you expect from investors
  • How you’ll pay for legal, advisory, and data-room tools such as a secure dataroom
  • How the new funds fit into your long-term strategy and success

Understanding capital raising fundamentals

Capital raising is the process of securing money from lenders or investors so your business can launch, scale, or transform. Companies raise funds to:

  • Develop products and pursue new market opportunities
  • Enter emerging markets or adjacent new industries
  • Finance mergers and acquisitions
  • Refinance costly legacy debt and strengthen the balance sheet

Debt financing vs. equity funding

There are two primary types of capital raising that are available to businesses today — debt financing and equity funding.

Debt financing

With this type of financing, you borrow and make scheduled interest payments. You keep ownership, but you must repay principal and comply with covenants.

Typical forms of debt funding include:

  • Bank loans and lines of credit (traditional loans and other traditional methods)
  • Asset-backed facilities
  • Bonds or private credit structures

Advantages:

  • Interest is usually tax deductible, reducing your effective cost of capital
  • No equity dilution, so founders maintain control
  • Clear repayment schedule that can be modeled into your financial documents

Risks:

  • Strain on cash flow if interest rates rise or revenue underperforms
  • Potential covenant breaches in down markets

Equity funding

With this type of capital raising, you sell an equity stake to accredited investors and become a co-owner.

Advantages:

  • No fixed interest payments
  • Suitable when you’re investing heavily in product and marketing efforts before profitability

Trade-offs:

  • Permanent equity dilution
  • More complex governance, especially with institutional investors and public companies

In addition to these types of capital raising, there are also hybrid investments combining elements of both — starting as quasi-debt and converting into equity in a later round, often with valuation caps or discounts.

When to choose debt vs. equity

  • Choose debt funding when you have a predictable cash flow and want to minimize dilution. Here, the opportunity cost of giving away equity is high.
  • Choose equity funding when you’re early-stage, pursuing aggressive growth strategies, or operating in emerging markets where banks are reluctant to lend.
  • Consider hybrid structures when you and investors want more time before fixing valuation.

For many established businesses, the optimal strategy is a blend of debt, equity, and hybrids across the company’s lifecycle.

Tip: For capital raising deals, no matter the type you choose, a virtual data room is essential. Browse the best capital raising data rooms in India to select the most suitable option.

Stages of a capital raise for a startup

All stages of raising capital typically follow recognizable stages, from the first check to an IPO. Here are the main ones.

Seed funding

Seed is where many small businesses and tech companies first seek investors for business beyond friends and family.

Typical components of seed funding include:

  • Founders’ own funds (bootstrapping)
  • Friends-and-family capital
  • Angel investors and high-net-worth private investors

The purpose of seed funding is typically to build an MVP, test demand, and show that your solid business plan can be executed.

The seed round itself often takes up to six months to complete and raise funds.

Series A, B, C and beyond

Once product–market fit is proven, venture capital firms and other institutional investors step in and support startups during Series A, B, or C funding:

  • Series A: Its focus is on repeatable revenue, clear growth trajectory, and strong unit economics.
  • Series B & C: Are larger funding rounds to scale into new markets and diverse industries.

The capital raising process becomes more rigorous as round sizes increase. Valuations rely increasingly on discounted cash flow models and comparisons with comparable companies.

Carta data shows the median time between seed and Series A is now more than two years, reflecting both tougher conditions and higher expectations on metrics as funding stages deepen.

IPO and public markets

At the end of the private-company journey, some mature businesses pursue an initial public offering (IPO) as the final stage of their funding:

  • Shares become freely traded in public markets
  • The company can tap a much broader range of investors
  • Reporting and compliance processes become significantly more demanding

Global IPO windows are cyclical: Barron’s, for example, notes that in 2024 venture-backed IPO activity remained below 2021 peaks even as VC spending on AI has surged again.

For most businesses, an IPO is a long-term possibility, not a near-term plan, but it should still inform how you think about governance today.

Capital raising strategies: the main methods

Most companies combine several funding options over their lifetimes. Below are the main routes to access capital, how they work, and when to consider each.

Strategy 1: Bootstrapping and self-funding

As part of this strategy, you fund the business from personal savings and internally generated cash.

Best for: Very early-stage teams that want to prove traction before approaching investors.

Pros

  • No equity share sold and no equity dilution
  • You maintain control over all strategic decisions
  • Strong signal of commitment to later potential investors

Cons

  • Higher personal financial risk
  • Slower growth if the business needs a significant amount of capital

Bootstrapping is often the most direct way to build a track record before speaking with venture capital investors.

Strategy 2: Business loans and debt financing

Here you use bank credit, asset-backed loans or other traditional methods of borrowing. Because interest is often tax deductible, this type of financing can be efficient for companies with predictable earnings.

Best for: Cash-flow-generating established companies that can service debt.

Key aspects

  • Banks focus on financial statements, collateral, and cash-flow coverage
  • You’ll need a detailed business plan and robust financial models
  • Interest and principal schedules must be realistic under different scenarios

Strategy 3: Angel investors

Angel investors are usually experienced operators or executives deploying their own money. They often invest before venture capital funds get involved.

They typically:

  • Take a minority equity stake
  • Move faster and rely more on personal conviction than formal investment committees
  • Provide introductions, mentoring, and early feedback

To attract angels, founders need a credible story, early traction, and a clean data room that makes investor due diligence straightforward.

Strategy 4: Venture capital

With venture capital, you work with professional venture capitalists that raise money from LPs such as pension funds and family offices.

They focus on:

  • Large, defensible market opportunities
  • Strong leadership teams and credible growth strategies
  • Scalability across multiple industries and geographies

While VC money can materially accelerate business growth, it also introduces multiple layers of governance and expectations around exit horizons.

Strategy 5: Alternative methods

Alternative methods broaden your universe of funding sources and can reduce dependence on traditional equity.

  • Crowdfunding: Equity crowdfunding under the JOBS Act and Regulation Crowdfunding allows eligible businesses to raise smaller amounts from a wide base of investors. The SEC provides detailed guidance on how much non-accredited investors can commit in a 12-month period.
  • Government grants: Non-dilutive cash for innovation, often available to small businesses and firms entering emerging markets.
  • Revenue-based financing: Repayments are tied to revenue, preserving equity while aligning investor returns with performance.
  • Strategic partnerships: Corporate investors may provide distribution and funding in exchange for an equity stake or exclusivity.

Crowdfunding also lets you build an engaged community early — valuable both for product feedback and for de-risking future funding opportunities.

Strategy 6: Raising capital for acquisitions

For acquisitions and mergers and acquisitions, the capital stack is usually more complex.

Its typical elements include:

  • Sponsor equity plus co-investment from institutional investors
  • Bank or private-credit debt financing
  • Rollover equity from sellers

Here, the sophistication of your financial models, discounted cash flow analysis, and integration plan drives both pricing and lender comfort. A well-structured capital raising strategy can mean the difference between an accretive deal and a drag on future returns.

Step-by-step capital raising process

If you’re wondering what fundraising steps typically look like, the following eight-step framework mirrors how you should work as a seasoned founder.

Step 1: Prepare and organize your materials

Preparation is where you build business credibility for investors. At this stage, you’ll need at minimum:

  • Executive summary
  • Pitch deck
  • Corporate structure and cap table
  • Business and marketing efforts plans
  • Historical financial statements and key metrics
  • Tax returns and bank statements
  • Major contracts, IP assignments, and employment agreements
  • Regulatory and license information

Centralize this information in a secure virtual data room rather than email or generic cloud folders. A professional data room lets you control permissions, track access, and present a clean structure to potential investors to support your startup growth.

Virtual data rooms are now standard in M&A and fundraising. Industry analyses note that purpose-built VDRs help keep deal parties on track during due diligence and impress buyers with a professional approach from the start.

Step 2: Investor due diligence preparation

Think like an investor. During investor due diligence, they will test whether your story holds up under scrutiny.

Expect focus on:

  • Forward-looking projections and sensitivity cases
  • Legal and regulatory compliance
  • Commercial viability and customer concentration
  • Technical and operational robustness
  • Management team background and track record

Your startup virtual data room should anticipate these questions and make it easy to find answers. This reduces friction and keeps investor communication focused on strategy, not document hunting.

Step 3: Identify and target the right investors

Map your deal to the right funding sources:

  • Angel investors and smaller funds for early-stage risk
  • Growth equity and private equity for scaling
  • Sector-specific funds for specialized investment opportunities
  • Impact investors or ESG-focused funds when relevant

Your goal is to find investors whose mandate, time horizon, and risk appetite align with your needs. Research each firm’s thesis and portfolio, then build a targeted outreach list and relationship-building plan.

Step 4: Pitch and present

Your pitch should clearly explain:

  • The problem you’re solving
  • The solution and business model
  • Market size, competition, and predictable future growth
  • Use of funds and expected milestones

This is where you set and refine realistic goals. Over-optimistic projections may win attention in the short term but undermine trust later.

Step 5: Navigate due diligence

Once interest is established, formal diligence begins — often lasting 4–8 weeks or longer.

Key recommendations at this stage:

  • Use your virtual data room to manage access for different funding sources
  • Track Q&A so you answer once and reuse responses
  • Update materials promptly when new information emerges

Step 6: Negotiate terms

After diligence, you’ll negotiate a term sheet covering:

  • Valuation and size of the equity stake
  • Governance and investor protections
  • Information rights and ongoing reporting
  • Anti-dilution, liquidation preferences, and future rounds of funding

Valuation discussions will refer back to your financial models, discounted cash flow scenarios, and comparable companies. This is the moment to set realistic expectations on both sides and avoid structures that could limit future funding possibilities.

Step 7: Finalize legal documentation

Lawyers convert the term sheet into:

  • Subscription or stock purchase agreements
  • Shareholder agreements
  • Warrant or note documentation
  • Regulatory filings and exemptions (for example, those relying on the jobs act and related securities rules)

Having all underlying documents organized in your data room speeds up this phase and reduces the risk of discrepancies that can erode investor confidence.

Step 8: Close the deal

Closing includes:

  • Satisfying conditions precedent and any final compliance checks
  • Coordinating wire transfers and issuing shares
  • Updating registries and cap tables
  • Executing your announcement and stakeholder communication plan

Use the close to reinforce the company’s reputation, underline how the new capital supports long term success, and cement your relationship with your new investor base.

How to prepare for a capital raise

A disciplined preparation phase makes every subsequent step of the capital raising process much easier. Here’s what to begin with.

Material information checklist

Before you start raising capital, ensure the following are complete and stored in your VDR:

  • Executive summary and pitch deck
  • Company structure documents and cap table
  • Three to five years of financial statements
  • Tax returns and bank statements
  • Contracts, leases, and IP documentation
  • HR and employment policies
  • Marketing and growth strategies documents

Key actions

To be fully “investment-ready”:

  • Build five-year financial models with conservative and upside cases
  • Stress-test scenarios for interest rates, demand shocks, and other factors
  • Ensure governance, reporting, and compliance processes meet institutional investors’ expectations
  • Use a structured environment like a virtual data room to avoid fragmented document versions and lost files and ensure proper, efficient document management

Quick reference: Capital raising without giving up equity

If preserving ownership is a top priority, these non-dilutive options can help:

  • Bootstrapping: Fund growth from retained earnings while you build business reputation.
  • Government grants: Particularly valuable for R&D-heavy or impact-oriented small businesses.
  • Business loans and other debt: Classic debt financing with interest payments that may be tax deductible.
  • Revenue-based financing: Aligns repayments with revenue, useful for SaaS and other recurring revenue models.
  • Vendor financing and invoice factoring: Bridge working-capital gaps without issuing equity.
  • Strategic partnerships: Corporates may co-develop products and share costs in exchange for access or an optional future equity share.

Each path has its own opportunity cost. The objective is to design a financial strategy that balances dilution, risk, and speed of execution.

Why a virtual data room is now essential

Modern deals almost always rely on a virtual data room rather than email or generic file-sharing. For both startups and established companies, a professional VDR is now an expected part of the process, not a nice-to-have.

Using a startup data room for capital raising helps you:

  • Present a clean, logical structure that supports fast investor due diligence
  • Control and audit access for different funding types and external investors
  • Demonstrate seriousness about security, which is critical to institutional investors and public companies
  • Run multiple deals or rounds of funding in parallel without losing control of versions and permissions

No wonder M&A advisors emphasize that VDRs keep deal parties “on the same page” and on schedule, reducing delays and miscommunication.

Capital raising as a path to durable growth

Done well, capital raising is more than a one-off transaction. It’s a strategic exercise in matching the right funding options to your growth potential and risk profile.

By following a structured, evidence-based set of fundraising steps, you can secure capital on terms that support genuine lasting success.

A secure, well-organized virtual data room keeps documents centralized, protects investors’ information, and showcases the professionalism that sophisticated investors expect.

Combined with realistic planning, disciplined execution, and transparent communication, it turns capital raising into a powerful lever for building a stronger, more resilient business.