Capital Raising 101

Money is easier to raise (depending on a few things), than people might think. But it can be a trap, so you need to approach it very carefully.

Capital Raising 101 for start-ups

Welcome to Capital Raising 101. Without question the number one topic entrepreneurs ask the most questions about. Now I have somewhere to point you all to for the basics.

Let’s get cracking.

Through Ethique, I have raised over $10 million in investment, over a five year period. We did two equity crowdfunding rounds, an angel investment round and finally a private equity deal for a lot of money at the end. As private equity is for more established businesses, it won’t be discussed here today.

Years and years ago, when I had no real business experience, I was offered my first chunk of investment by someone who became my first business partner — my very first angel investor. It was overwhelming, exciting and added a heap of pressure suddenly being accountable to someone else, but ultimately very worthwhile. Hopefully this will help navigate those early opportunities so you can approach investment strategically and ensure you get the best possible outcome for you and your business.

I am going to list through the basics, pros, cons and how to start looking at the various methods of capital raising open to early-mid stage start-ups.

So let’s get cracking.


Yes, we’ve started Capital Raising 101 with talking about not capital raising. I have a problem with the way that raising capital is seen as a start-ups ultimate success. Whereas businesses that bootstrap their way to growth are largely left out of it. Without question, the work and talent it takes to bootstrap your way to an established company is incredible.

Definition: So what is Bootstrapping? It’s using the money you personally can inject into your business only, and then the incoming revenue to fund your business. In today’s world of outrageous raises, it’s not hugely common, but there are incredible examples of businesses that have scaled to huge heights on their own.

I cannot stress enough that you need to put your personal finances and safety first above your growing business.

· Full control over your business. You don’t have to wrestle with investors with different ideas, boards who want to go in a different direction or general nonsense politics.

· Fewer barriers to starting your company. You just… get started. If you need to wait for others to fund your idea, it takes longer.

· No dilution. By not selling shares, you and your co-founders (if any) own 100% of your company. So you reap the full rewards.

· No pressure to hit certain milestones. Investors, no matter how impact-led they are, want a return on investment (businesses must be financially sustainable!). They often have 4–5 year cycles they want to hit before they sell shares on, or they demand a certain level of revenue. We’ll get into why this can be problematic later.

· Whilst full control is great, good investors come with excellent advice and helpful networks. You are less likely to get this offered for free if they don’t have a stake in the company.

· Lack of funds is obviously the biggest one. Cash is the fuel your start up needs and most founders don’t have an unlimited well to tap into. This may slow your growth (it usually does). It means you have less resource for R&D, marketing, hiring and so on.

· Personal finance stress. I cannot stress enough that you need to put your personal finances and safety first above your growing business, which I know sounds ridiculous. But the pressure you put on yourself both mentally and financially when bootstrapping shouldn’t be underestimated. At least with an external source of dosh, you feel like you share the load.

· The last limitation, though I don’t think it should be something you make a decision on, is that people seem to take start ups that haven’t raised a little less seriously. Again, going back to my point that investment = success. It doesn’t to be clear, investors make incredibly bad investments all the time. But this lack of credibility sometimes becomes a mild nuisance. Or you could take the attitude of ‘who cares, I like being underestimated’.

Who is it best for: Almost all start-ups start bootstrapped and I recommend trying to maintain it for as long as possible. Whilst money absolutely helps, I have always found the best, most creative teams are the ones who can squeeze a dollar the hardest.

Who shouldn’t do it: It’s not best suited for those who are building a company that needs a lot of R&D to create their first prototype, or one that will need constant injections of cash for awhile before they generate revenue. Some companies simply can’t bootstrap from day one.

Examples of companies:
The most valuable brand in the world… Apple.


Mailchimp — an incredible success story.

How to get started: Start by being realistic about your finances. What you need to live and how long you can prop up the business before it starts generating revenue. There are a lot of factors, like whether you will still work elsewhere which will provide you an income to support yourself and the business, but of course lessens the time you can spend on it. Never ever put your family home on the line to fund something as risky as a start-up. And be mindful of how much debt you put yourself in for it too (we all start with one personal credit card for the business, don’t let it escalate!).

Family & Friends.

Definition: This one is pretty obvious and often the first (or second) port of call for entrepreneurs. Friends and family. It’s also one of my least favourite. Let’s explore why.

· It’s usually an easier way to raise funds. Often they do little due diligence and invest because they believe in you and your product.

· Favourable terms usually.

· No fights over control, and less chance of board room politics being distracting.

· Never lend money to friends or family that you expect to get back. The damage you could do to your relationships if your business doesn’t go as well as you expect is significant. Tread carefully.

· Lack of experience, networks or advice that can be helpful unless the family member/friend has relevant experience.

· Small amounts of cash — the amount you can borrow from close relationships, unless you roll in certain circles, is probably quite small.

Who is it best for: If you have people you can ask, and you feel comfortable you could do it in a way that preserved relationships, this method probably works for all business types. And I have no doubt some people would be chuffed to be asked and thought of. But the only time I would do this personally, is if the family member/friend was involved in the business and had shared responsibility.

Who shouldn’t do it: It’s Don’t take money from people you know couldn’t afford to lose it. And if you do do it, treat it very professionally. Get contracts, ensure they know what they are doing and will most likely (statistically) lose.

For further reading on this one, here’s a good article.


I’ll preface this with saying crowdfunding is my favourite method, but it won’t work for all brands and there are some things to be mindful of.

The ‘ringing of the bell’ for our first crowdfunding raise

Definition: There are largely two types of crowdfunding, reward and equity, (I won’t discuss debt crowdfunding here, as it’s unusual). Reward crowdfunding is what people typically think of, made famous by the likes of kickstarter. People pledge money and in return get rewarded with stuff like early access to the product. Equity crowdfunding is where you are selling shares — actually part of your business like a mini stock market. Speaking ethically, I believe as a business you should only go down the equity crowdfunding route. Giving people rewards in exchange for helping your business has never sat that well with me. Reward them long term for supporting you.

· It’s an excellent marketing opportunity and a way to create a community of incredibly passionate supporters that go the distance with you. A huge group of people who will sing your praises as they want you to grow. I still have the very original Ethique shareholders email me now!

· I found it less intimidating than working with angel investors when I was starting out as the conversations were much less corporate and jargon filled.

· Low barrier to entry — it’s fairly easy to pull together a campaign so almost anyone who wants to give it a crack can do.

· It’s a method to test the market as you are exposed to a huge group of people through the network of the platform. Not only might they invest but they will probably give you feedback you never considered.

· Cost — to do it properly you need to invest a little. In legal, to ensure you are protected as are your pledgers, in marketing to spread the word and make some great content and in finance to ensure your numbers are robust and your forecasts achievable. The platform you use will also take a success fee — around 5–6%.

· Complexities. If you structure it wrong, for example by giving your crowd funders the right to vote on too many decisions, or not using something called a nominee company, you can really complicate basic company operations.

· If you fail, it’s public. Personally, it wouldn’t worry me too much. But some people consider failure embarrassing. (I think you should just be proud you gave it a shot.)

· Some people consider it a ‘childish’ way to raise money. I have literally had a banker stand up at an event where I was speaking and ask me when I was going to raise capital ‘the grown-up way.’ If it doesn’t bother you, great. I couldn’t care less. People don’t like new things.

· Dilution (if equity crowdfunding).

Who is it best for: Businesses who have a crowd of loyal to a fault supporters. Those who are building a brand people can adore. Purpose-led businesses tend to do well as they are something people get excited about.

Who shouldn’t do it: It’s hard to crowdfund for a slightly more dry or complex topic. Like complex tech, medicine, or finance related. It’s not impossible, but it’s tough. It’s not for brands who are looking to rip people off with insane valuations (that happens way too often), or for brands that want to stay vague and hidden behind spreadsheets. These people are trusting you with money they earned and that needs to be respected. There are also a lot of legal limitations, for example in Aotearoa you can only raise $2m per crowdfunding per year. So factor that in.

Examples of companies:
Obviously, I am going to use Ethique as an example here. We did it twice; once in 2015 for $200k in 10 days. Second in 2017 for 500k in just 90 minutes! You can read more here

Flow Hive. They eventually raised over $13m!

Allbirds. They were phenomenally successful on Kickstarter using a rewards campaign.

How to get started: Have a really good think (and chat with your team/friends/family) about whether you have the a) product or b) crowd to support a crowdfunding raise. Going out as an unknown isn’t impossible, but it’s harder. You want to build a crowd first. Once you’ve decided it’s for you, what platform is best. Have a look at their campaigns, their success rate, their fee structure, what they do to support you and have a chat with their team. All platforms have their own niche and it’s important to realise which one you fit best. Then, start pulling a campaign together. You will need forecasts (with assumptions behind them that has a basis in reality, not dreams), financials, a solid plan and a valuation that isn’t ridiculous. Then you need to pull together an investment memorandum and a video.

Angel Investment

A small angel investment is how Ethique got started, that came about from a mentoring arrangement. It was great as my business partner and I got to know each other before we went the investment route

Definition: An ‘angel’ is usually a high-net-worth individual who invests in start ups. They often have experience in business and good networks (though not always). They invest anywhere from $50k- to $1m in a start-up, but it’s usually around the $100–200k mark.

· Angels typically come with great experience and networks which can be immeasurably helpful with growing a start-up.

· They are usually keen to help, so are available on the end of a phone or for a coffee should be facing a particularly tricky challenge (which at some point, you will do).

· They can invest a fair amount, so you may only need one or two in a round to get the investment you need, which takes less time and is less complex.

· No risk to you as the founder if the business doesn’t work out — angels are usually well versed in the high-risk world of start-ups and understand failure.

· Taking investment from a angel you can’t work with. I always recommend you take this process slowly (so build in a long time for your raise), as once you have an investor, it’s harder to go back.

· An angel may want a board seat, or a degree of control which could ultimately be against what you want the company to do.

· Dilution.

Who is it best for: Almost all start-ups will at some point suit an angel investment round, depending on their size. Angels can do checks all the way up to $1m (and beyond) so they work for early stage all the way to more mid-stage start-ups. Businesses that perhaps aren’t as consumer focused or are too complex for crowdfunding.

Who shouldn’t do it: Early stage or pre-product businesses may find an angel investor wants more of their business in return for investment than they may like, due to the huge risk around an untested product.

Examples of companies:




How to get started: Once you’ve decided you want to start speaking to angels, you need to first ensure you have all your ducks in a row. Financials, forecasts, business plan, pitch deck all put together. Rehearse your initial pitch, ensure you know your financials inside and out and focus on the story behind your brand — your ‘why’. Then start reaching out to angel investment groups — there are loads. In Aotearoa start here. Most angel groups have niches they like to invest in; impact investments, tech, women founders, so make sure you and your company fits the bill before contacting the group.

And last, and very much least… Banks.

Banks are my least favourite option for early-stage start-ups. They become more user friendly later in your business journey with some proven results, but if you have a business idea, or an early-stage enterprise and no collateral, it’s highly unlikely you will get a look in. Banks are extremely risk adverse and without long term evidence of historical trading and financials showing you almost don’t need the money, banks aren’t there to help start-ups get off the ground.

Money is easier to raise (depending on a few things), than people might think. But it can be a trap, so you need to approach it very carefully. Always, always have a lawyer and an accountant by your side (the money you pay them will pay itself off a hundred times) and ensure you think really carefully about how much you need to raise and why. Be sure you know which of the above options suits your business the best (or it may be a combination of them). Always turn to resources like business mentors, investment specialists and crowdfunding platforms and ask all the questions you could possibly have before agreeing to anything. And always get legal documentation, even if you’re borrowing from friends and family.

Good luck!