Setting-up a call for capital
Modification date: 2023-01-31 / View count: 294

Setting-up a call for capital

We use the term "Call for Capital" without any connection to the financial terminology, which calls for capital aimed at securing short-term financing of projects within private equity funds to cover the time between the financing agreement and the receipt of the funds. More simply, the term "call for capital" refers, in our view, to any action carried out to increase the capital for a company by a contribution of funds or by contribution in kind.

The purpose of a capital call is to invite investors to acquire shares in a company to provide the company with additional financial resources, advice and assistance to fulfil the objectives set by the entrepreneur(s). For this, it is necessary to set clear objectives regarding the marketing of products or services sold by the company and to be able to estimate the capital or financing needs of the company. From the beginning, the company must have a strategy to manage partners. Does the company need shareholders in the long term, or are there plans to buy out new entrants in the short period?

Raising capital for a company is a decisive act in gaining market share.

Participation in the capital of a company can take several ways:

  • cash contribution,
  • contribution to the industry,
  • contribution of real estate.

A cash contribution is made through the purchase of newly issued shares in the company. The new shareholder will then hold shares in the company.

A contribution in kind can be made in several ways. For example it can be done by transferring a patent to the company in exchange for shares. The company then becomes the patent's owner and can exploit it on the market. The patent owner then becomes a shareholder in the company by transferring his patent.

The contribution of real estate is done by transferring real estate to the company in exchange for shares. For example we can have this situation when an owner of shop premises joining forces with a shopkeeper to improve teh exploitation of a shop. The two shareholders then pay each other a profit on the operation of the business.

Venture capital is the acquisition of shares by investors in the capital of unlisted companies. The objective of the investors is to make a capital gain when the shares are resold. With this objective in mind, these investors look for innovative companies with strong growth potential.

Opening up capital to investors is often necessary to ensure the company's growth, but what percentage of the capital can be opened up to outsiders?

The goal of an entrepreneur is to keep control of the company, even with venture capital. For this, it is first necessary to analyse the needs of the company and its type of market. Next, you need to look at the current ownership structure and the potential for growth in the company's turnover. Finally, one should look at the type of holders of the venture capitalists, many smallholders or a single venture capitalist.

We must make a distinction between the investor and the partner. The investor brings a contribution to the company but does not actively participate in the life of the company. He is a shareholder and expects a return on his capital and will try to make a capital gain when reselling his shares. The partner holds shares and actively participates in the life of the company, in particular in the decision-making process.

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