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Capital Raising

Last updated 15 days ago

What is a capital raise?

A capital raise is when companies approach investors to provide additional capital to the business in the form of either debt or equity.

A capital raise is when companies approach investors to provide additional capital to the business in the form of either debt or equity.

Conventional Debt

Conventional debt provides the borrower the permission to borrow money from the lender with the obligation of future repayment, usually with interest. The lender charges interest to compensate for the time value of money, as well as risk of repayment. In some cases, the debt will be secured against an asset owned by the borrower in order to provide a degree of repayment security in the case of non-payment/default.

Convertible Debt

Convertible debt (also known as a convertible note) is a hybrid security that gives the borrower the permission to borrow money from the lender with the obligation of future repayment, usually with interest. In addition, either the investor or the borrower has the ability to convert the debt into ordinary equity at a future date in place of repayment.

This security contains several advantages to the investor as it offers the downside protection provided by the fixed income debt factor, with an added potential equity kicker on the upside. 

Read more about convertible debt here.

Equity

Equity raises is the process of raising capital through the issue of new shares in the company. This allows the borrower to take partial ownership in the business and unlike. debt, the funds raised do not have to be repaid.

The price at which the shares is issued at depends on the risk of the issuing company, the growth prospects, market conditions among others. Investors are able to monetise their investment either through dividends, capital gains, or stock buybacks.

Companies raise capital for a variety of business purposes. Read more here.

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