How to raise capital painlessly.
Corang Capital Raising Model
This model allows companies to raise large amounts of capital without losing control of the company.
The stock exchange is a market for control of companies rather than control of cash flows.
Therefore one of the main goals of any entrepreneur is to manage the capital table to ensure they retain control of the company.
1) The Capital Structure
A useful capital should use an unlisted public company with 100 million ordinary shares at the start. It is possible to use a Proprietary Limited to start but the initial round of capital should convert to an Unlisted Public Company (Ltd) with 100 million shares.
eg Imaginary Company Pty Ltd has 1,000 shares only. The Information Memorandum (fundraising document) should state “One of the uses of the capital is to convert Imaginary Company Pty Ltd to an Unlisted Public Company with an initial capital structure of 100 million ordinary shares”
2) Listing a Company
Companies that are planning to list on the stock exchange have multiple funding rounds. You should only raise money when you have achieved a goal and have gained some traction.
eg Just starting, first sale, initial prototype, hitting a revenue target or something else.
3) Writing the Information Memorandum
There is a template with a Constitution available on request. It is not difficult to write an IM but it is boring. Depending on the age of the company it normally takes about 1 -3 weeks to write an IM. Fees for writing the IM are highly variable from $2,000 - over $100,000
4) Pricing the Founding Rounds:
Depending on how much capital is required the first or seed round could be priced at $0.05 with 20,000,000 shares. This raises $1 million. In exchange for 16.7% of the company.
A reasonable target is to double the price from the round before. eg Seed Round $0.05. A Round $0.10. B Round $0.20 etc
If the company requires more capital increase the price of the shares.
This overview simplifies the capital fundraising process. Capital Raising should not be difficult, nor expensive but many organisations attempt to convince you otherwise and demand thousands (tens of thousands??) of fees in advance. It is just a process of explaining the financial requirements of the company and how you are going to use the money. Normally it is possible to raise any amount of capital required within 8 - 12 weeks. (3 months).
Actual costs: Starting with a Pty Ltd company cost $600 or starting with an Unlisted Public company about $1200
Fees for raising capital is between 5-10% (Normally 7%)
Call Richard Hayes +61 434 023 640
Effects of Fundraising on your Capital Table
Capital Tables reflect the ownership and control of the company.
Using the Corang Capital Raising Model for a Biotech startup.
1. Incorporation of New Biotech Ltd
Issue 100 million Ordinary shares to the Founders with a cost of $2,000. Due to limitations on the ASIC computers, this must be done manually. Corang uses ASIC registered agent.
Shares 100 million Founders Ownership 100% Market Cap $2,000
2. Raise a Seed Round
Issue 20,000,000 new shares at AUD 0.10 to raise $2 million.
Shares 120 million Founders Ownership 83.3% Market Cap $12 million. Achieve a goal, raise the next funding round.
3. Raise an A Round
Issue another 20,000,000 shares at AUD 0.20 to raise another $4 million.
Shares 140 million Founders Ownership 71.4% Market Cap $28 million. Achieve a goal, raise the next funding round.
4. Raise a B Round
Issue another 10,000,000 shares at AUD 0.40 to raise another $4 million.
Shares 150 million Founders Ownership 66.7% Market Cap $60 million. Achieve a goal, raise the next funding round.
5. Raise Pre-IPO Round
Issue another 20,000,000 shares at AUD 0.60 to raise another $12 million.
Shares 170 million Founders Ownership 58.8% Market Cap $102 million. Achieve a goal, raise the next funding round.
4. IPO Issue another 30,000,000 shares at AUD 1.00 to raise another $30 million.
Shares 200 million Founders Ownership 50% Market Cap $200 million.
Founders keep control and $100 million within 4 years.