Capital Raising – A practical guide

What is Capital Raising?

Capital raising refers to the process of obtaining sources of external funding to support the growth, stability and operations of a business. Rather than relying solely on existing cash flow or internal resources, businesses can seek investment or financing from outside parties.

Businesses can raise capital at different stages of their lifecycle to support development, scaling or major strategic moves. Appropriate methods will range depending on the business stage. For example, at an early stage, businesses likely require funding for equity whereas more established businesses may be more focused on debt or hybrid structures.

Different Ways to Raise Capital

Equity Capital

Equity raising involves issuing equity in itself (shares or units) in exchange for investment. This process is most commonly used by businesses that are seeking capital growth without taking on debt, or who cannot access debt funding due to their financial status or lifecycle.

Equity capital provides funding without repayment obligations, but requires owners to share decision-making and control with new shareholders

Debt Capital

Debt raising involves borrowing funds that must be repaid over time, such as:

• Bank loans

• Secured or unsecured loans

• Convertible debt instruments

Debt in this form allows founders to retain control but requires meeting interest and repayment obligations. Usually debt is secured over the business assets, and often also over the assets of the directors.

Hybrid Structures

Hybrid instruments combine features of both equity and debt and are commonly used where valuation is uncertain, or a particular commercial outcome is sought by investors or the business. Popular avenues for this include:

• SAFE notes (Simple Agreement for Future Equity)

• Preference Shares

• Convertible notes

These structures offer flexibility and allow valuation discussions to be deferred until later funding rounds.

Legal and Regulatory Considerations

Capital raising in Australia is regulated by the Corporations Act 2001 (Cth) and is overseen by the Australian Securities Investment Commission (ASIC).

As a general rule, raising money from the public is prohibited unless it falls into a number of exceptions, or a disclosure documents is produced.  The law generally accepts that sophisticated or professional investors, or those closely linked to the business can be issued equity without the level of disclosure and protection required for ‘mum and dad’ investors. 

Businesses involved in capital raising should assess their proposed investors and may have to deal with:

• Disclosure obligations

• Eligibility exemptions

• Governance documentation

Compliance is essential to ensure the raise is valid, enforceable and aligned with investor expectations.

How we can assist

We can assist you through the process of capital raising by:

• Assisting in establishing equity, debt and hybrid funding structures

• Modelling capital tables and step plans for future capital requirements;

• Drafting and reviewing investment and shareholder agreements

• Advising on ASIC requirements and disclosure obligations

• Assisting in the negotiation of investor rights and governance arrangements

If would like advice on capital raising for your business, please contact:

Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E:pgray@ha.legal

Hugo Le Clerc
Senior Associate
T: 03 5225 5213 | M: 0438 089 334
E:hleclerc@ha.legal

Jemimah Fitzgerald
Lawyer
T 03 5225 5219
E: jfitzgerald@ha.legal

This article was prepared with the assistance of Charlotte Newman, paralegal.