Perhaps the most commonly-referenced capital raise is when a private company goes public via an initial public offering (IPO) wherein an issuer sells stock to the general public. While public offerings can be effective in raising capital, they are less frequently used than many of the other varied alternatives for capital formation for a business, including private equity, private debt, mezzanine, unitranche, venture capital, venture debt, private placements and various other securities offerings exemptions.
Raising capital is rarely easy, especially for companies with little to no track record of success. The most successful capital formation projects typically include a combination of several of the following: 1) experienced and pedigreed management team, 2) existing cash flow and traction, 3) direct and personal access to the right institutional investment groups and 4) well-prepared investor marketing materials, including offering memos and prospectus documents, where required. Investment bankers help with each of these critical elements, working with issuers in offering preparation, investor introduction and ultimate funding for the most promising deals.
We do help raise growth equity, debt and acquisition financing for companies, but we are often very selective about the types of groups with whom we engage. For instance, we do not work with pure startups and typically not with companies doing less than $5M in annual revenues. Without significant revenues, the companies become less compelling from the perspective of an institutional investor.
Reasons for Raising Capital
Growth —With an infusion of cash from stock sold for equity, debt or mezzanine, companies can better prepare for growth, including internal organic growth or growth by acquisition. Use of funds can include the purchase of PPE (property, plant & equipment), recruiting key employees, research and development, renovation or new construction or simply buying-out a competitor.
Shareholder Liquidity —Investors, shareholders and founders who may have been tied to an illiquid business for many years are likely to look toward an eventual exit and liquidity in their stock ownership. As they do, various structures and options abound for using private equity and debt as a means for buying out shareholders and investors. Shareholder liquidity can be acquired through various means including selling direct equity, corporate recapitalization, dividend recapitalization or employee stock ownership plans (ESOP).
Raising capital in the public markets has certain appeal. However, with today’s private equity and debt markets more liquid and cash-flush than ever, staying private and sourcing capital from the private markets has become more compelling. Yes, being public allows issuers to take advantage of public stock for acquisitions and recruit employees using equity as consideration. However, avoiding the cost and headache of going public and maintaining public status is not only much easier it is also most often better advised for companies doing less than $50M in annual revenue.
Types of Deals
We work across the capital spectrum, structuring capital formation deals for clients depending on their unique business goals and existing structure. Most frequently, we work with institutional investment groups in sourcing growth and exit equity and debt capital. However, on occasion, and depending on the deal we do work on compelling Regulation D and Regulation A+ exemption offerings.
Private Equity –We work on capital raising for private equity financings either for majority or minority buy-in or complete acquisition. In doing so, we most often source financing from institutional investment groups, including venture capital, family office and private equity groups. Equity can include convertible notes or other types of preferred equity structures.
Private Debt –By sourcing private debt, mezzanine and unitranche financing for our clients, we can better provide a blended cost of capital that better meets the internal goals of management and shareholders. Private debt is often used for internal growth, recapitalization, shareholder liquidity or M&A financing.
Real Estate—We help finance across the capital stack for various and interesting commercial and residential real estate projects across the United States and Canada. We work actively with some of the most well-known real estate private equity and private debt investors in the market.
Because we are selective at the types of capital raise deals we do, we like to know a bit more about the business looking to raise funds.
- Company name, location, description and vision
- Terms and traction of your current funding round
- Terms and information about prior financings
- Pitch deck and other key files presented to investors
- Total intended investment round size
- Allocation that you would like us to raise on your behalf
- How much capital has already been committed from other investors
- Notable investors in the current round
Applications proceed through an initial screening by our internal DealMachie to ensure that your company size and fundraising type are a good fit with our internal mandate. During this process, we connect with your management team to discuss any follow-up pieces to you transaction. The final step in the process is a commitment committee screening wherein other various questions may be asked about the business including traction, milestones and backup and support statements.
We do not conduct independent due diligence, unless otherwise listed in any offering documents. We partner with other parties to run anti-money laundering (AML) and know your customer (KYC) verification.