Fundraising

Fundraising can be defined as the process of raising and allocating financial resources for specific applications. It can be accessed by both – individuals and legal entities, it can be used by both for emergency situations, for working capital, debt coverage, and in statistical situations, such as investments or acquisitions.

“The nature of our business requires regular contacting and a close relationship with specialized financial institutions to offer solutions that are normally more competitive than the credit lines offered by typical institutions.”

In the case of mergers or acquisitions, the operation is known as LBO – Leveraged Buyout, and it occurs when the acquisition of shares of a company, wholly or partially, takes place by the use of leverage, that is, by using third party capital (debt). The advantage of this type of financing is the preservation of the acquirer’s equity, which in times of low interest could be wisely invested in the generation of wealth within the operation itself.

Whether for one reason or another, we at Rumo Negócios are prepared to analyze, plan and present the most suitable options for your projects taking into account its real necessity, its destination, and the most competitive options available at the time

Modalities

Sale of equity interest

Fundraising option through equity sales, that is, through the sale of the company’s equity interest. The entry of a partner can provide not only for the business’s financial needs but also for the management shortcomings, especially when the new partner’s knowledge supplements any existing limitation or deficiencies of the current management. And although it requires a lot of discipline from all parties, it presents itself as a good option in the mid/long term, when thinking about business growth.

Bank Credit Lines

Fundraising choice through bank financing, debt notes, anticipating receivables, among others. Its advantage is the preservation of the company’s ownership but it bears the disadvantage of the high interest rates and fees charged by typical financial institutions, which also requires the company to have at least two years of operating history.

Venture Capital

Venture capital is a form of private investment where capital is invested into young companies, startups, and small companies in return for long-term growth potential. Venture capital has the characteristic of being provided by wealthy investors, investment banks, and other financial institutions with enough funds available to take greater risks in exchange for greater returns.

Private Equity

It is a modality normally operated by Equity Investment Funds or Stock Funds, which buy and restructure more mature companies that have already reached a certain annual turnover and which are still privately held or not publicly traded on the stock exchange. Investments often occur through leveraged acquisitions, venture capital, capital for growth, investments in stressed companies, and mezzanine financing.

Here, the investment time horizon is usually pre-determined and the Stock Fund acquires part of the company (quotas of the capital stock or shares) with the goal of increasing its market value and eventually selling its share at a future time with a profit. In Brazil, the average investment time ranges from 4 to 7 years.

Development and Grant Programs

Development Agencies are State Institutions whose aim is to financially support research and solutions in science, health, technology, and innovation. Seeking fundraising projects from such institutions may be handled directly by the entrepreneur, and it is in his ability to manage each stage of the process until its proper conclusion.

Hiring companies specialized in this type of intermediation gives the entrepreneur more speed, efficiency, and peace of mind to continue developing the management-related activities of the company, while the whole process is being properly taken care of. The added experience substantiates the project with valuable information and ultimately assists the company in the final approval of the credit line required.

In Brazil, there are several institutions that offer such credit lines and Rumo Negócios is prepared to work on your projects with the following institutions: BNDES, FINEP, Fomento Paraná, BRDE, among others.

Crowdfunding

It is a collective funding method that resembles what is known today as a “virtual going dutch”, and which attracts people to invest in your project.

In crowdfunding projects, you submit your project for a preliminary assessment by the platform’s administrators and, once some necessary and minimum requirements have been met, a specialized crowdfunding site will be registered, rightfully authorized by the Securities and Exchange Authority (CVM), and is apt to proceed with the funding.

Once published, deadlines and reward goals are set for investors. If the goal is reached in time, the entrepreneur will receive the funds raised. Otherwise, the amounts will be returned to investors.

Such a method is regulated by the CVM through its Normative Instruction 588 dated 07/13/2017. It allows companies with annual revenues of up to R$10 million to make public offers through collective funding on the Internet with automatic exemption from registration as required by issuers at the CVM. The fundraising limit is R$5 million per entrepreneur, and to protect investors, one of the conditions is that this type of operation occurs through platforms that have obtained the authorization process from the said authority.

Rumo Negócios has a strategic partnership with a Crowdfunding platform and is able to pre-evaluate projects for future registration and funding.

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Do you have any questions?

See the most frequently asked questions about Funding. Should there be any remaining questions, please contact us, we will be happy to talk to you.

How can I raise funds for my company?

There are different ways to raise financial resources in the market. One of the most popular is the bank, after all, every company needs to have at least one checking account and some level of relationship with banks.

Nevertheless, a commercial bank is not necessarily one that offers the best credit line for your business model. Smaller banks or investment funds may be a viable option for such cases.

Another way of raising funds is by attracting strategic investors who can allocate financial resources in the company, demanding quotas in the share capital, or collateral. Both options are feasible for the entrepreneur.

There is a different approach for each of the said formats, and expert advice aid entrepreneurs to make better decisions.

How do I know if my company is prepared to be the recipient of financial investment?

To answer the question, the entrepreneur or manager needs to be aware of some important factors of his business.

How much is required?
What is the company’s cash flow like?
How much working capital does the company need?
How structured are your accounting and management reports?

These and other factors are essential to establish whether a company is prepared for capital allocations, especially from private investors or investment funds. Not leaving out that the structuring of the said information is key in the management of the company’s day-to-day operations.

What are the guarantees required to raise funds for my company?

Investment guarantees will depend on the credit source profile, being it from a bank, an investor, or an investment fund.

In general, guarantees are required for credit concessions. Most of the time, collateral such as real estate or equipment is required to serve as a security for the loan. However, depending on the level of professionalism of the company’s management, and the quality of their balance sheets, its receivables and the endorsement from partners as guarantors may be accepted. In some cases, e.g., raising funds through the sale of equity interest, the transfer of the company’s shares can also be used as collateral.

And on account of that, the more professional the company is, the easier it will be to access capital from the market.

What documents are needed to raise funds?

Usually, each financial institution has its own ways of operating. However, some documents are common features among them:

Balance Sheet;
Income Statement (accounting and management);
Income Tax Reports from Partners;
Bylaws;
Debt ratio;
Among others.

Having said that, keeping the information in an orderly fashion is always crucial when you need third-party capital.

And again, the more professional the company is, the easier it is to access credit from the market.