Raising the development capital is especially common among private equity funds. Because they are so heavily regulated they have a huge burn rate that can reach millions of dollars per year on legal compliance. And they need to pay all these expenses even before they raise any money and get some fees they can use for operations. This is why before setting up the fund they obtain several million dollars in the development capital to support the fund while they are raising money for the main fund, which may be already hundreds of millions of dollars.
You may ask whether your initial investors will like the fact that you are spending their money not on developing your business but to raise more capital. There are two reasons why this is fine, which you should use in communication with people who are eager to invest in your business:
- Marketing of your crowdfunding campaign is also marketing of your brand and your product, so this is money put to the right use.
- It is a common practice to include the cost of the campaign in the list of expenses in your financial plan. If you still deliver satisfactory profits, your investors should benefit from it.