How to Raise Capital | Sprintlaw Australia

Raising money is one of the biggest turning points in a business journey. It can help you hire your first employees, build your product, purchase equipment, expand into new locations, or simply smooth out cash flow while you grow.

But if you’re researching how to raise capital, you’re probably also thinking: Where do I start, what’s the “right” way to do it, and how do I avoid legal mistakes that come back to bite me later?

The good news is that raising capital in Australia can be very achievable when you break it down into clear steps. The key is to treat capital raising as both a business decision and a legal process. Even if you’re raising funds from family, friends, or a single investor, the structure and paperwork matter.

Below is a practical step-by-step guide to help you move from “we need funds” to a well-run raise that supports your business (and protects you while you’re scaling).

Step 1: Get Clear On What “Raising Capital” Means For Your Business

At a high level, capital raising is about bringing money into your business so you can grow. In practice, there are different ways to do this, and each one has different costs, risks, and legal implications.

What Are You Raising For?

Investors and lenders almost always ask this early. Before you approach anyone, write down:

How much money you need (and whether that’s a single amount or staged over time)
What the money will be used for (product build, marketing, staff, equipment, premises, etc.)
When you need it by
What milestones the money should achieve

This isn’t just “business planning” - it impacts the best legal structure for the raise. For example, if you only need a short-term injection to fund inventory, debt might be cleaner than giving away shares.

Do You Need Debt, Equity, Or Something In Between?

Most capital raising options fall into three buckets:

Debt (you borrow money and repay it, usually with interest)
Equity (you sell part of the business, typically by issuing shares to investors)
Hybrid (for example, a convertible instrument that starts as debt and can convert into equity later)

There isn’t a universal “best” option. A bootstrapped business that wants to stay founder-owned may prefer debt. A high-growth startup chasing rapid scale might lean towards equity.

Sanity Check: Can Your Current Structure Actually Raise Capital Easily?

One common issue we see is that founders start as a sole trader or simple partnership (which can be perfectly fine early on), and then hit a wall when they want to raise external money.

Equity fundraising is usually much easier through a company structure because you can issue shares and clearly document ownership. If you have (or plan to have) co-founders, a Shareholders Agreement is often one of the most important foundations before you bring investors into the picture.

Step 2: Choose The Right Capital Raising Path (And Know The Trade-Offs)

Once you’re clear on why you’re raising and what you can offer, the next step is choosing the pathway that fits your stage, risk tolerance, and growth plan.

Option 1: Self-Funding (Bootstrapping)

Bootstrapping means using your own funds and business revenue to grow. It’s common in early-stage small businesses because you keep full control and avoid complex investor obligations.

The trade-off is speed. Bootstrapping can limit how quickly you can hire, market, and scale - and it can put personal finances under pressure if you don’t plan carefully.

Option 2: Loans And Traditional Finance

Debt funding can include bank loans, business loans, and other financing arrangements. The upside is you don’t dilute ownership. The downside is repayment obligations - even if the business has a slower month.

If you’re borrowing from individuals (including friends or family), it’s worth documenting the terms properly so everyone is on the same page. Depending on the arrangement, a formal loan agreement may be appropriate, and the lender may want security over business assets.

When security is involved, it may also be relevant to register a security interest on the PPSR. (This is one of those areas where getting the documentation right early helps avoid disputes later.)

Option 3: Equity Investment (Selling Shares)

Equity investment generally means issuing shares in your company to investors in return for funds. This can be a great fit if:

you’re building a business with strong growth potential, and
you can offer investors a credible pathway to returns (dividends, a future sale, or other exit event).

The trade-off is control and complexity. Once you issue shares, you have new owners in the business. That affects decision-making, reporting expectations, and the legal “rules” you need to follow as a company.

Many founders underestimate how important the company’s internal rules are. A tailored Company Constitution can be particularly important where you want clear processes around issuing shares, transferring shares, meetings, and director powers.

Option 4: Convertible Notes / SAFEs (Hybrid Funding)

Hybrid options (often used in startup fundraising) can allow you to raise money now with the valuation discussion pushed to a later time. These arrangements still need careful drafting because they set out what triggers conversion, discounts, caps, repayment rights, and what happens if the business doesn’t raise again.

The “headline” may sound simple, but the details are where risk can hide - especially around conversion mechanics, founder control, and future fundraising restrictions.

Option 5: Grants And Government Programs

Depending on your industry, location, and activities (for example, innovation, manufacturing, training, exports), you may be eligible for grants. Grants can be attractive because they may not require repayment or giving away equity, but they often come with strict eligibility rules and reporting obligations.

From a legal perspective, always read the grant terms carefully (especially around milestones, audit rights, publicity, and IP ownership).

Step 3: Prepare Your Business For Due Diligence (Before You Start Pitching)

If you want to know how to raise capital successfully, this step is the part many founders skip - and it’s often the reason raises stall.

Even for small raises, investors (and lenders) will want confidence that your business is stable, legally compliant, and not a ticking time bomb of disputes.

Get Your “House In Order” Checklist

Before you share your pitch deck widely, it’s worth checking:

Business structure: Is your company set up correctly? Are your shareholdings accurate and documented?
Ownership and founder arrangements: Do you have clear rules on decision-making, exits, and what happens if a founder leaves?
Key contracts: Do you have customer, supplier, contractor, and partner terms in writing?
Intellectual property (IP): Does your business actually own the brand, code, content, designs, or know-how it relies on?
Employment and contractors: Are your people properly engaged under the right agreements?
Privacy and data: If you collect personal information (common for online businesses), are you handling it properly?

This is also where good legal documents become part of your fundraising “value”. Investors like businesses that can show they operate professionally and can manage risk.

Make Sure Confidential Information Stays Confidential

When you start fundraising, you’ll be sharing information that may be commercially sensitive (financials, pricing, customer pipeline, product roadmap, source code, supplier terms).

In some situations, it can be appropriate to use a non-disclosure agreement (NDA) in early conversations, particularly where you’re sharing detailed proprietary information. Just be aware that not every investor will sign an NDA at the outset, and an NDA doesn’t replace good internal controls (like limiting who has access to data rooms and tracking versions).

Sort Out Your Customer And Revenue Foundations

Investors will often ask: “How do you make money, and what stops customers from leaving?” This is where your commercial terms matter.

If you sell goods or services (online or offline), having clear Business Terms can help define payment terms, delivery timelines, liability settings, cancellations, and dispute processes.

And of course, your customer-facing conduct needs to comply with the Australian Consumer Law (ACL), especially around refunds, warranties, marketing claims, and unfair contract terms.

Step 4: Understand The Key Legal Rules When Raising Capital In Australia

Capital raising isn’t just “getting money in”. Depending on how you do it, you may be dealing with corporate law, securities law, consumer law, and sometimes financial services regulation.

Here are the big-picture legal areas to keep on your radar.

Company Law Basics: Directors’ Duties And Corporate Records

If you’re raising as a company, directors have legal duties (including acting in the best interests of the company and avoiding improper use of position). When new money comes in, you’ll also need to keep corporate records up to date - for example, recording share issues properly and documenting key decisions.

If you’re taking on investors, it’s often a good time to tighten your internal governance, including your constitution and shareholder arrangements.

Disclosure And Investor Communications (Don’t Overpromise)

One of the most common pitfalls is saying too much in a pitch. Founders are optimistic (as they should be), but you need to be careful about how you describe financial forecasts, market size, and projected returns.

As a general principle, avoid statements that could be considered misleading or deceptive. It’s usually safer to be clear about what is fact, what is a reasonable assumption, and what is a forward-looking projection.

Privacy Compliance If You Use Customer Data In Your Pitch

If you collect customer or user data, be cautious about sharing it during fundraising. Even if you’re only sharing “metrics”, you may still be dealing with personal information depending on how the data is presented.

It’s also a good time to check that you have a fit-for-purpose Privacy Policy, especially if you’re operating online, running ads, or building a mailing list.

Employment And Contractor Risk (A Common Red Flag In Due Diligence)

If your growth plan involves hiring (or you already have a team), investors commonly check whether your people are engaged correctly and whether the business owns what they create (like code, content, processes, and designs).

Using a clear Employment Contract (and well-drafted contractor agreements where appropriate) can reduce the risk of disputes and clarify IP ownership.

Security Interests And Asset-Backed Funding

If your lender wants security over business assets (like equipment, inventory, receivables, or other property), it may be relevant to register a security interest on the Personal Property Securities Register (PPSR).

This is a practical risk-management step for lenders, and it also affects your business - because existing security interests can impact future funding options.

If PPSR is relevant to your raise, a good starting point is understanding PPSR basics and how it interacts with business assets.

Step 5: Document The Deal Properly (So The Relationship Doesn’t Fall Apart Later)

When money enters your business, expectations enter with it. A lot of business disputes don’t happen because people were “bad” - they happen because the deal wasn’t documented properly, memories differ, or assumptions were never discussed.

Here are the documents that commonly come up when you’re raising capital.

Key Documents For Debt Funding

Loan agreement: Sets out how much is being lent, interest (if any), repayment terms, default triggers, and what happens if the business is sold.
Security documentation: If the lender takes security over assets, you may need additional terms and potentially a PPSR registration strategy.
Director guarantees: Sometimes lenders require personal guarantees from directors (this can be a big risk - get advice before signing).

Key Documents For Equity Funding

Share subscription terms: Covers how shares are issued, price, classes of shares, and what investors receive.
Shareholders agreement: Sets out governance rules, voting thresholds, transfer restrictions, founder vesting (where relevant), investor rights, and what happens in a sale or dispute.
Company constitution updates: Often required where you have different share classes or need tighter rules around share issues and transfers.

Founders sometimes treat these as “paperwork to get done at the end”. In reality, these documents are the deal. They’re what you fall back on when priorities change, when a co-founder leaves, or when you’re negotiating your next round.

Terms For Your Customers And Partners Still Matter During A Raise

Fundraising doesn’t pause your day-to-day operations. If anything, the pressure increases - you’re promising growth, and the business needs to deliver.

That’s why customer and commercial contracts are still part of “raising capital readiness”. If you don’t already have written terms for sales, services, subscriptions, or delivery, fixing that can improve your negotiating power during the raise (and reduce the chance of nasty surprises in due diligence).

Key Takeaways

Working out how to raise capital starts with clarity: why you’re raising, how much you need, and whether debt, equity, or hybrid funding makes the most sense.
Capital raising is easier when your foundations are strong - including clean ownership records, clear founder arrangements, and well-organised contracts.
Equity fundraising often requires a company structure and well-drafted governance documents so decision-making and share ownership are clear.
Be careful with investor communications: what you say in pitches and forecasts should be accurate, supportable, and not misleading.
Legal documents aren’t just formalities - they protect the business relationship and can prevent disputes as soon as expectations diverge.
Getting legal support early can help you move faster, negotiate better terms, and avoid avoidable red flags in due diligence.

General information only: This article is not legal, financial or tax advice. Capital raising can involve regulated financial products and disclosure obligations, and the right approach depends on your circumstances. Before acting, consider getting advice from a lawyer and an accountant, and where relevant, a licensed financial adviser.

If you’d like a consultation about raising capital for your startup or small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Official Sources to Check

Rules and regulator guidance can change. Check the current official material most relevant to this issue before relying on the article:

How To Raise Capital: A Step-By-Step Guide For Australian Startups