We often get asked by Impact Founders or CEOs how much money they should plan to allocate to fundraising efforts.
The first thing you want to make sure to do is allocate a legal budget because you want to be compliant with securities laws. So that can vary depending on the type and stage of capital you’re raising. However, definitely set aside anywhere from $5,000 to $25,000 for legal costs to do a proper fundraising that meets all securities compliance elements. Depending on your relationship with your legal counsel, you may be able to defer certain costs until the close of financing.
However, part of the needs assessment process we undertake with Financial Services clients here at The Change Agent Hub, is to determine if they have adequate working capital to effectively prepare all the materials needed to conduct a successful fundraising effort. Oftentimes what results is the realization, particularly with startup Founders and CEOs, that they haven’t allocated adequate resources to package up their offering and are needing to find a path forward to bring their vision into a fundable reality. We assess what that package budget needs to be for the stage and business model type being pursued, so they can go about aggregating the necessary resources to get this important work done. Typically, in a startup, this capital requirement is underwritten by the Founder, or out of initial Friends and Family money.
Another aspect to have budgeted would be your financial model. If you have in-house talent that’s capable of building the level of sophisticated model needed for the type of capital you’re raising, great. That’s awesome. You can probably save some money there. If not, then you’re going to need to hire someone or contract somebody to build that model for you. This will be a process that can range from anywhere from $3,000 to $5,000 for a very simple business model and can cost as much as $30,000 or even $50,000 for a more sophisticated financial model.
It is important to find an aligned financial model builder who has the appropriate skills to create your financial model and it is critical that it’s done from a financial consultant who really knows what they are doing, if this is the path you end up taking.
Another budget allocation item required will be marketing materials. How are people going to know who you are if you don’t have marketing materials? So you’re possibly going to need copywriters, designers and even videographers if you want to have some video content in your deck or in your outreach materials. So all of that has its cost.
Another consideration depending on the type of round you’re going out for, is that you may choose to go the route of a broker-dealer. And if that’s the case, then there’s probably some kind of upfront retainer, which typically is in the $10,000 to $20,000 range for a broker, depending on how much capital you’re raising.
Then of course you need enough money to support yourself, your team and your company while you’re out doing the fundraising. For most rounds of capital, you can expect at least three months to close on your targeted capital raise and in a more challenging economic climate, even longer. So figure that’s a three-month marketing effort and it’s going to take that amount of time to go from what we like to call the mouth of the marketing funnel, taking the pipeline of prospects through the process all the way to consummating a wire transfer into your company’s bank account.
Now you can always start with less and create your own copy, shoot your own video, etc… But don’t try to create your own financial model unless, like Steven (co-founder and CFO at TCAhub), you have a Masters in Finance and have done it several times before. Otherwise, this will not stand up to the scrutiny it will face in due diligence with investors.
Want to get prepared to raise capital successfully?
Download our Free Fundraising Checklist Here: https://thechangeagenthub.net/fundraising-checklist
Once you receive the checklist you’ll be redirected to a video walkthrough so you can use this checklist most effectively. And you’ll also be invited to check out our 9-step fundraising preparation roadmap with detailed information called Impact Incubator Immersion. This program is the exact process all our impact clients have used to raise capital successfully.
