Raising capital can be a time consuming and costly exercise.  It is critical to ensure you have enough funding to make it through the capital raising process.  Even small capital raisings can cost 30-50k to run.  Founders need to dedicate an average of 1 day per month for 6 months to the process, and ensure that they have sufficient funds to engage specialist advisors and lawyers to ensure that capital is raised in accordance with local legislation, and that all parties are adequately protected.

One particularly useful technique used by early stage ventures is known as the Convertible Note.   Convertible notes are becoming increasingly important in the capital raising process, with many Venture capital and Angel investors opting to issue convertible notes for early stage investment.

A convertible note is effectively debt that converts to equity either at the option of the investor or at a specified time or milestone.  A major benefit of the convertible note is that you do not have to have your desired structure, legals and documentation in place from the outset.  By issuing a loan, you can potentially avoid many of the compliance issues, and company structuring issues that and exchange in equity involves.  By the time the note is converted (generally 3-6 months down the track) you will have been able to use this funding to put the appropriate legal framework in place.

Depending on the Jurisdiction in which you are raising capital, it may be possible to offer preferential terms for the conversion of the note, to provide an incentive for this early investor to provide funding by means of a convertible note.

This approach can be a useful technique to ensure you have enough capital to run your capital raising program