How to Raise Capital: The Essential Guide for Entrepreneurs

Capital raising is how a business secures the money it needs to start, run, or grow, either by selling equity (shares in the company), taking on debt (a loan you repay), or using a hybrid instrument that sits between the two. In Australia, most capital raising by small companies happens privately, under exemptions in the Corporations Act 2001 (Cth) that let you raise without a full prospectus.

Here’s the part nobody warns you about: the hard bit of a raise usually isn’t finding the money. It’s the housekeeping you should have done first, the cap table, the paperwork, the ownership of your own IP, that gets picked apart the moment an investor runs due diligence. Get that right early and the raise gets a lot less stressful. This guide walks you through the methods, the process, the legal rules, and the documents, so you know what to do next.

What is capital raising?

At its simplest, capital raising is the process of bringing outside money into your business to fund operations or growth. You give the provider of that money something in return: a share of ownership if it’s equity, or repayment with interest if it’s debt. The capital raising meaning is that plain at its core, even if the structuring around it can get involved.

In practice, founders raise capital to do one of a few things: extend their runway before revenue kicks in, hire ahead of demand, build a product, or move into a new market. The money is the easy part to picture. The trade-off is what matters. Equity means giving away a slice of your company and, usually, some say in how it’s run. Debt means a repayment obligation that starts whether or not the business is thriving yet.

How does the capital raising process work in Australia?

Knowing how to raise capital comes down to following a rough order, and the capital raising process usually runs like this: get clear on why you’re raising and how much, get your company “raise-ready”, agree headline terms with investors, paper the deal, then close and issue the shares. Skipping to the money conversation before the first two steps is the most common way a raise stalls.

Before you talk to anyone, be able to answer three questions cleanly: how much you want, what the money is for, and how much of the company you’re prepared to give up. If you can’t yet, that’s a sign to slow down rather than push ahead. A “raise because we can” approach tends to create obligations with very little upside.

If you’re issuing equity, you’ll also need a pre-money valuation, what the company is worth before the new money goes in. That figure drives dilution, the amount of the company existing owners give up. Founders often anchor on a headline valuation and forget that a clean, accurate share structure matters just as much. A messy cap table is one of the fastest ways to lose an investor’s confidence during due diligence.

What are the main ways to raise capital?

Every method of capital raising falls into one of three buckets: equity, debt, or hybrid. The right one isn’t about which is “best”, it’s about which suits your stage and how much control you want to keep. Here’s how they compare.

Type	What it is	Suits you when	The catch
Equity	You sell shares for cash. Investors become part-owners.	Growth is the focus, cash flow is lumpy, and you want investors who bring networks or expertise.	You give up ownership and usually some control. It’s not “free money”.
Debt	You borrow money and repay it, usually with interest.	You have predictable cash flow and want to keep 100% ownership.	Repayments start regardless of how the business performs. Lenders may want a personal guarantee.
Hybrid	Instruments like convertible notes and SAFEs that start as one thing and convert to equity later.	You want to raise quickly and defer the valuation fight to a later round.	Conversion terms decide your future dilution. The detail is easy to get wrong.

Within those buckets, these are the sources Australian small businesses use most.

Self-funding and bootstrapping

Using your own savings and early revenue keeps you in full control and skips the paperwork entirely. Most founders start here. The limit is obvious: your own money only goes so far, and stretching it too thin can starve the business of the fuel it needs to grow.

Family and friends

Early money from people who believe in you is often the first outside capital a business sees. The trap is treating it casually. Decide upfront whether each contribution is a loan, a gift, or an equity investment, and put it in writing. An undocumented “loan” from a family member has a way of becoming an awkward conversation two years later, right when an investor asks to see your cap table.

Angel investors

An angel investor is a high-net-worth individual who puts their own money into early-stage businesses in exchange for equity. The good ones bring more than cash: introductions, mentoring, and a sanity check on your plan. Angel deals are usually more flexible than institutional rounds and can move fast.

Venture capital

Venture capital firms invest pooled money into businesses with high growth potential, and they invest larger amounts than angels. In return they expect strong growth, a big addressable market, and deeper due diligence, plus ongoing reporting once they’re in. VC suits a small slice of Australian businesses, mostly high-growth startups, not the average small company. If you’re a local services business, this probably isn’t your path, and that’s completely fine.

Equity crowdfunding

Crowd-sourced funding (CSF) lets eligible companies raise money from everyday retail investors through a licensed platform, in exchange for shares. Eligible companies can raise up to $5 million in any 12-month period this way, and each retail investor is capped at $10,000 per company per year. CSF can build a community of customer-shareholders around your product, but it comes with its own eligibility, disclosure, and reporting obligations, so it needs planning.

Government grants

Grants and tax incentives (like the R&D tax offset for eligible development work) aren’t capital raising in the strict sense, since you don’t give up equity or take on debt. But they extend your runway and make you more attractive when you do raise. Start with the grant finder on business.gov.au to see what your business might qualify for.

Business loans

A bank or lender advances money you repay over time with interest, without taking any ownership. To qualify, you’ll usually need to show you can repay it, provide financial statements, and meet the lender’s credit criteria. Watch for personal guarantees: many small business loans ask a director to guarantee the debt personally, which puts your own assets on the line if the business can’t pay.

What legal rules apply to capital raising in Australia?

In Australia, capital raising is governed by the Corporations Act 2001 (Cth) and regulated by the Australian Securities and Investments Commission (ASIC). The starting rule is that offering shares to investors requires a disclosure document (usually a prospectus), unless an exemption applies. For small businesses, the whole game is fitting inside one of those exemptions.

The “20/12” small-scale exemption

This is the first stop for most early-stage raises. You can make personal offers that result in shares being issued to no more than 20 investors, and raise no more than $2 million, in any rolling 12-month period, without a prospectus. Two things trip people up. The cap counts the people you actually issue shares to, not everyone you pitch. And the offers have to be personal (aimed at people with a genuine connection or interest), so posting your raise publicly on social media can blow the exemption.

Sophisticated and professional investors

Offers to “sophisticated” investors sit outside the 20/12 caps. An investor qualifies if they invest at least $500,000 in the one offer, or if a qualified accountant certifies (within the last two years) that they have net assets of at least $2.5 million or gross income of at least $250,000 for each of the last two financial years. “Professional” investors, such as licensed financial services businesses or entities controlling at least $10 million, are a separate, higher category. These pathways are how most larger private raises are structured.

The 50-shareholder cap for private companies

A proprietary limited (Pty Ltd) company can have a maximum of 50 non-employee shareholders. That structural limit is one reason founders think carefully before filling a cap table with lots of small investors. It’s also why the company structure you raise into matters: most investors will only put money into a company, not a sole trader or partnership, because a company can issue shares and limits their liability.

What we see in Lawpath consultations

Across the capital raising consultations Lawpath lawyers run every week, the same avoidable problems come up again and again. None of them are about finding investors. They’re about the groundwork founders wish they’d done sooner.

• Founders copy US SAFE templates without checking they fit. The SAFE note was designed by a US accelerator and it’s everywhere online, so it feels like the default. In practice, our lawyers see plenty of Australian investors who’d rather have a convertible note or straight equity, because a SAFE gives them no repayment right and no shares until a trigger event that might never come. Ask your investors what they expect before you send a template.
• The pre-money versus post-money SAFE trap. A founder will say they want a founder-friendly “pre-money” SAFE, then hand over a document whose definitions actually make it post-money, which dilutes the founder far more heavily. The wording buried in the “SAFE price” definition decides which way the dilution falls. Read it, or have someone read it, before you sign.
• No shareholders agreement ready for when the money converts. A convertible note or SAFE governs how the investment converts, not how the company is run once those investors become shareholders. Our lawyers consistently recommend having a shareholders agreement drafted before conversion, not scrambling for one at the point of a dispute.
• The company doesn’t actually own its own IP. This is the single most common due-diligence surprise. Founders or contractors built the code, brand, or designs, but nobody ever assigned that intellectual property to the company. Investors won’t fund an entity that doesn’t own the thing generating the value. Get an IP deed of assignment signed from each founder before you start raising.
• Offering a later investor better terms than an earlier one. Many SAFE and note templates contain a “most favoured nation” clause. Sweeten the deal for a new investor and that clause can automatically upgrade your earlier investors too, quietly increasing your dilution. Model the flow-on effects before you change terms mid-raise.

What documents do you need to raise capital?

The exact set depends on how you raise, but most Australian small business raises use some combination of the documents below. Getting them consistent with each other (and with your company constitution) is what “raise-ready” really means.

• Term sheet: a short, usually non-binding summary of the key deal terms. Often the first document an investor sees, and the place to agree the fundamentals before anyone pays for full drafting.
• Shareholders agreement: the ongoing rulebook for how shareholders relate to each other and the company, covering decisions, director appointments, and share transfers.
• Share subscription agreement: the contract for a priced equity round, setting out how many shares are issued, at what price, and on what warranties.
• Convertible note or SAFE: hybrid instruments where money now becomes equity later, usually at a discount or valuation cap.
• IP assignment deed: the document that legally moves intellectual property from founders and contractors into the company, so the business owns what investors are backing.

If you want the full picture of paperwork before you start, our guide on legal documents you need to raise capital breaks it down, and the business plan template is a good place to get investor-ready.

Frequently asked questions

What does capital raising mean?

Capital raising means bringing outside money into your business to fund operations or growth. You raise it either by selling equity (shares), taking on debt (a loan repaid with interest), or using a hybrid instrument like a convertible note that starts as debt and converts to equity later.

How much can I raise without a prospectus in Australia?

Under the small-scale “20/12” exemption, you can raise up to $2 million from no more than 20 investors in any rolling 12-month period without a prospectus. Offers to sophisticated or professional investors sit outside those caps, and equity crowdfunding allows eligible companies to raise up to $5 million a year.

Which laws govern capital raising in Australia?

Capital raising is governed by the Corporations Act 2001 (Cth) and regulated by ASIC. Chapter 6D sets the general rule that share offers need disclosure, and section 708 lists the exemptions that let private companies raise without a prospectus.

Do I need a company to raise capital?

For equity investment, almost always yes. Most investors will only put money into a company, because it’s a separate legal entity that can issue shares and limits their liability. If you’re a sole trader or partnership, you’ll usually need to restructure to a Pty Ltd company before raising.

What’s the difference between a SAFE and a convertible note?

Both let an investor put money in now for shares later. A convertible note is a loan that converts to equity, so the investor is a creditor until conversion. A SAFE isn’t a loan and carries no interest or repayment right, so the investor only gets shares if a trigger event happens. Australian investors often prefer convertible notes.

How long does a capital raise take?

It varies widely. A small friends-and-family round on standard documents can close in weeks, while a priced equity round with due diligence and negotiation often runs several months. The biggest time sink is usually fixing the groundwork (cap table, IP ownership, documents) after an investor asks for it, rather than before.

The bottom line

If capital raising feels like a lot, that’s normal, and it’s usually the paperwork side that makes it feel that way, not the fundraising itself. The founders who find it smoothest aren’t the ones with the flashiest pitch. They’re the ones who sorted their structure, their cap table, and their documents before they walked into the room. That’s the real secret to raising capital without the last-minute panic, and you can do it too, one step at a time.

The best first move is getting your legal foundation right so you’re ready when an investor says yes. Book a consult with a Lawpath lawyer to get your capital raising documents in order before you start.