Counting the Costs: Fees and Expenses in the $500k–$5m Raise

Raising capital requires spending some capital. Brokers usually charge a small retainer to cover initial work and a success fee that becomes payable only when funds are secured. In the mid-market, success fees fall in the 5 %–10 % range depending on the size of the raise and the amount of work involved. These fees compensate the broker for time spent preparing materials, identifying and vetting investors and managing negotiations, assisting in the drafting of documents, and completing the sale.

Legal, accounting and due-diligence costs add to the total. Drafting investment documentation and shareholder agreements may run tens of thousands of dollars. Engaging an experienced commercial lawyer ensures compliance with securities regulations to mitigate your risk. You should also budget for the time you will spend away from daily operations. Raising capital distracts from running a company, delegating aspects of the process can help mitigate that cost.

While the total of costs, fees and expenses associated with a capital raise can seem like considerable, they should be viewed in context. Properly sourced capital can enable business growth that far outweighs initial costs, and additional capital, if and when needed, can be factored into the initial agreements. Transparent fee agreements and realistic budgeting prevent unpleasant surprises and preserve cash for the expansion that follows. We would be happy to discuss this with you and provide a ballpark figure of what we think the transaction cost for your capital raise would be.