A company's primary focus is on building its business—developing its product or service, growing its customer base, increasing revenues, reducing costs, and managing day-to-day operations. While these are essential responsibilities, they often leave little time or attention for one of the most critical aspects of business growth: raising capital. Navigating the legal and regulatory landscape associated with raising capital requires a high degree of precision and experience. This is where skilled professionals adept at raising capital becomes indispensable.
An experienced professional can assist with structuring the offering, drafting disclosure documents such as private placement memorandums (PPMs) and subscription agreements, and advising on the appropriate type of securities to issue based on a company’s goals and growth stage. But the value extends well beyond drafting documents. Below are five key reasons every company should retain a professional when raising capital.
1. Avoiding the Wrong Investors
One of the most common pitfalls companies face is accepting capital from the wrong investors. These individuals may lack the financial capacity, commitment, or alignment with your company’s long-term vision.
A qualified professional team can help you vet potential investors to ensure they are properly accredited, capable of supporting the venture, and aligned with your business strategy. This process goes beyond basic financial verification—it involves legal due diligence to avoid disputes or misaligned expectations that could undermine your company in the future.
Remember: accepting capital means entering into a long-term relationship. The right counsel ensures that the relationships you form with your investors are sound and beneficial for both sides.
2. Access to a Valuable Network
Experienced professionals doesn’t just bring deal experience and acumen to the table—they bring relationships.
A seasoned professional has often worked with venture capital firms, private equity sponsors, angel investors, and other accredited investors. These connections can prove invaluable in helping you identify potential investors or partners. In some cases, an introduction from a trusted professional may open doors that would otherwise remain closed to a company that is new to capital markets.
This network effect is one of the less obvious but highly strategic benefits of engaging the right professional advisor early in your fundraising journey.
3. Preventing Costly Legal Mistakes
Retaining a professional advisor at the outset of a capital raise should be seen as an investment—not a cost. Mistakes in securities offerings can result in significant financial penalties, reduced raise amount, investor lawsuits, delayed capital raise, or enforcement actions by the Securities and Exchange Commission ("SEC") or state regulators.
A professional advisor helps you navigate complex securities regulations, including Regulation D exemptions, Form D filings, and applicable Blue Sky laws that vary from state to state. By ensuring compliance from the start, you greatly reduce the risk of having to unwind transactions, refund investors, or face fines and reputational harm.
In short: hiring a professional advisor early helps you avoid exponentially more expensive consequences down the road.
4. Support for Strategic Business Decisions
Many company's are subject matter experts in their chosen industry, but have limited or no experience with structuring businesses or raising capital. Whether you're a manufacturer opening a production facility or a technologist launching or scaling a startup, you may not be familiar with the mechanics of entity structuring, deal negotiation, or investor relations.
A professional advisor brings more than oversight—they act as a strategic advisor. They can help you determine the right securities to issue, negotiate terms that protect your control and upside, and ensure that investment documents reflect your long-term business objectives. The right professional advisor doesn’t just protect your downside—they help you think through the business implications of your capital structure.
5. Ensuring Compliance
Securities offerings, even those conducted under exemptions such as Regulation D, are still subject to complex federal and state laws. Noncompliance can result in penalties, rescission rights for investors (i.e., you have to return the capital raised!), and regulatory scrutiny.
A professional advisor ensures your capital raise is fully compliant, from drafting offering materials to filing required notices with the SEC and state regulators. They also help you avoid inadvertent general solicitations or other missteps that could jeopardize your exemption from registration.
In today's environment—where regulators are increasingly focused on investor protection—compliance is not optional. It is essential.
In summary, raising capital is a critical milestone in the life of any business, but it is also fraught with legal and regulatory risks. Engaging experienced professional advisors with deep knowledge of securities laws and regulations on both a federal and state level, gives companies the tools they need to raise capital confidently, compliantly, and strategically.
Whether you’re preparing your first private offering or managing a more complex capital structure, sound guidance can mean the difference between success and setback.
