Capital raise – how start-ups & scale-ups can ensure future success

Capital raising is often treated as a discrete event – a round closes, the money lands, and the business moves on. However, for some start-ups and scale-ups, raising capital is a long-term lifecycle decision: each raise shapes the next one, and early decisions around structure, disclosure settings and investor rights can compound over time.

The companies that treat fundraising as a strategic pathway, not a one-off transaction, will set themselves up for success.

Are you thinking about a capital raise?

Many start‑ups and scale‑ups reach a point where organic growth is no longer sufficient to fund the next stage of development. Whether it is hiring key staff, investing in product development, or expanding into new markets, fundraising is a critical step.

At its simplest, a capital raise is the process by which a company issues securities to investors in exchange for funding.

Capital raises typically fall into three broad categories:

• (Equity) Ordinary shares or preference shares issued to founders, angel investors or venture capital funds

• (Quasi‑equity) Instruments such as convertible notes and SAFEs, which convert into equity at a later date, usually on a priced funding round

• (Employee equity) Options or performance rights issued under an employee share scheme – this may run alongside a capital raise to attract and retain talent and reward key contributors to the business.

From a regulatory perspective, a key consideration is whether the offer of securities triggers disclosure obligations under the Corporations Act 2001, or whether the company can rely on an exemption.

Equally important, and often underestimated, is ensuring that a capital raise is supported by appropriate legal documentation, clear completion mechanics, and well‑managed closing deliverables. Poorly structured raises can create long‑term issues around ownership, dilution, operation structure, investor rights, compromise internal relationships and future funding rounds.

Disclosure framework and increased scrutiny by regulators

Australian law requires a disclosure document (such as a prospectus) for an offer of securities unless an exemption applies. In practice, most start‑ups and scale‑ups rely on exemptions such as:

• the small scale offering exemption (offer must be made to no more than 20 investors in 12 months and raise no more than $2 million)

• the sophisticated investor exemption (permits offers to investors who meet prescribed wealth or income thresholds, usually evidenced by an accountant’s certificate)

• the professional investor exemption (applies to institutional investors, AFSL holders, and other investors capable of assessing investment risk without disclosure).

This means no prospectus is required and a raise can be conducted privately. While these exemptions remain available, they are technical and should be actively managed. Issues that commonly arise:

• multiple raises are conducted over a short period

• informal marketing materials are used too broadly, or

• there is a failure to align the legal structure of convertible instruments with how they are described commercially.

ASIC has recently increased its focus on private capital raising activity, including in the start‑up and scale‑up ecosystem. While the regulator has emphasised its support for capital formation, it has also made clear that private raises are not “unregulated”. For founders, this means:

• greater care around what is communicated to investors

• more discipline in structuring and sequencing funding rounds, and

• an expectation that companies understand and comply with their legal obligations at an early stage.

A disciplined transaction process covering term sheets, agreements, completion mechanics and closing deliverables reduces execution risk and positions the company for future funding rounds or an exit. This avoids misunderstandings around rights, unintended dilution and governance issues that can be costly and difficult to unwind.

Examples of recent capital raises

We regularly work with founders at different stages of the fundraising lifecycle, including:

• early friends and family rounds

• bridge rounds using SAFEs or convertible notes

• larger VC‑led raises, including Series A rounds.

By way of example, we have recently assisted start-ups and scale-ups in several industries including:

• a company in the quantum computing space with a VC raise, ahead of a larger round planned for the new financial year

• an AI company completing a $500,000 friends and family round, with plans to raise approximately $5 million as part of a Series A later this year

• a technology company securing investment from a US‑based investor to support the expansion of its global platform.

We have also supported our clients with employment agreements, shareholder agreements, vesting agreements, IP assignments, SAFE notes (e.g. to tidy up shareholder loans on their books), amongst other legal mechanics related to their expansion (e.g. subscription documentation, approvals, accession documents, post completion records, ASIC filings).

Increased focus, better outcomes

Capital raises are no longer just about securing funding. They are governance events that can materially affect future rounds, valuations and exit opportunities. Ensuring clear guidance can help avoid costly restructures later, reduce founder dilution risk, improve investor confidence, and position the company for its next phase of growth.

If you are considering a capital raise or want to understand whether your current structure is investor‑ready, we are always happy to discuss.

Author: Rahui Eruera

Supporting partner: Adam Henderson

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.