Are you expecting easy flowing capital in the time-frame of your
capital planning?
Successful issuers know from trends that the easy flowing capital of the 1990s and 2000s was an unusual phenomenon and is unlikely to return during the time-frame relevant to their capital planning.
They also know from trends that persistent and compelling marketing alone succeeds in motivating the highly fragmented private market for capital.
So, for you to succeed today on your capital planning, you must know how to set and meet deadlines even amidst the uncertainty in the market today.
What must you do in this regard?
Are you aware that strong investor
relationships are a critical condition for success but only when combined with
sufficient time for a persistent marketing campaign is a transaction able to
succeed?
Now you get the information:
You need to find a process that is
accelerated between your initial offering pitch to approval of funding.
Otherwise, you know your critical deadline would be threatened and that
suggests likelihood of failing on your capital planning.
To this effect, you need to build a solid
relationship with the right Private Equity firm which would require extended
due-diligence to arrive to informed decision on potential opportunities,
typically 4-6 months.
If you are planning
to recapitalize your company, you need to set a
realistic timeline that will allow the right PE firm to play its
advisory role in the accelerated process of due diligence, helping you easily access
funding not later than 8 months.
Since it takes this long, then early
planning is good to ensure you have enough time for risk assessment and
management preparation when choosing a potential investment opportunity for
your investors, as provided by the PE firm that conducts your due diligence
within the stated time-frame.
This time is also one of relationship
building between your company and the PE firm that guarantees your ability to
maintain professional conduct that will benefit your company when the funding
you need is approved.
Get prepared for a quality
presentation delivered to the appropriate investor that will result in a rapid
decision.
While this is to be taken care
of when planning the initial offering pitch, its preparation should be
allotted sufficient time that will help you identify all the strengths of your
company that will be of interest to the appropriate investor.
Get it well packaged as a deliverable to
be made available at the right opportunity.
Understand at the same time that the
investor will not only scan your presentation but pay attention to details.
Your time spent in preparing a quality
presentation will pay off when the investor sees your presentation to be
acceptable and believable, after spending sufficient time on
reviewing it.
Enough time allows private
investors screen and conduct due diligence on potential opportunities.
Moreover, spending sufficient time on
screening and due diligence is very important for the investor to determine
that your company is sexy and safe to invest in before plunging any fund into
it.
If you feel you are not conversant with
the accelerated process of your initial offering, then do not just start any
deal with an investor, ask first for advice which is essential to helping you prepare
appropriately for your initial offering.
Advice is mostly cost
effective, so consider having a budget that will fit into the need for advice.
Mostly, investors won't advise you, so
your PE firm would be your best option for reasons that the firm has made
professional provision for advisory services and would offer you a negotiable
advisory fee.
You should give the appropriate PE firm
assurance of proceeding on deal origination with you, for accessing the needed
capital through its own investor base.
This means you get all you want from a PE
firm that offers you advisory service and equity capital in dual capacity as
your investment consultant and your investor.
This is the best relationship you should
consider building if you don't have sufficient knowledge of the accelerated
process for your initial offering.
You should view the advisory fee demanded
of you as a show of interest and indication of willingness to be committed to
the terms of the relationship being built with the firm.
If you formerly feared
advisory fees undermine the alignment of interest achieved through a pure
success fee only model, consider changing your model if timing is critical in
your case.
Mostly, you get the trust of the firm when
you are able to pay an advisory fee, showing that you will not fail to pay the
success fee when the fund has been approved.
You know this is the basic term of working
with a PE firm.
You would be considered a
monster waiting to eat up an investment, if you cannot work hard enough to pay an
advisory fee, it shows you might be unable to manage the fund you will receive
thus putting the investors to 98% risk of wasting any fund you receive; since
you can't prove how committed and hardworking you are, if you can't pay an
upfront advisory fee.
Thus, even after preparing and delivering
a quality presentation, without proof of commitment through payment of advisory
fees, no PE firm will take you seriously when coming to accelerate the process
of your initial offering.
So, refusal to pay an advisory fee is a
great disservice to your company's smooth accelerated process of
initial offering.
Why waste
all efforts of planning and pitch preparation if you will not show proof of
commitment?
Remember that the PE firm
will be risking everything if you fail to deliver returns after capital has
been provided, and, this fear of failure is at the core of the justification
for a demand of advisory fees.
Even though you currently don't have a
huge budget for marketing campaigns, don't
compromise your interest by failing to plan a budget for an advisory fee, even
before consulting a PE firm.
Being able to pay an advisory fee shows
the firm that your management team is credible and you have done proper
planning for your initial offering, before advancing to seek help for an
accelerated process that will help you reach your initial offering deadline.
The most thoughtful PE firm is willing to
invest an order of magnitude more than the advisory fee in marketing the
transaction and if you have committed to the process with your budget
accommodating a negotiable advisory fee, you will be expected to negotiate in
good faith and this is a critical pretext for success.
So I advise you to sharpen your
negotiation skill and have a balanced understanding of negotiation, before
contacting a PE firm.
The PE firm's syndicates are
negotiation professionals, so you have to prepare very well when contacting the
firm for negotiating the advisory fee which will be paid upfront.
No one's interest is worth being
comprised, but every good negotiator looks for his BATNA first, in
order to forfeit the lesser important interests for the other party to achieve
his most valued interest also.
Get informed immediately that if you
succeed on any advisory fee negotiation, you have only agreed to pay a mere 5%
of your success fee upfront.
And if that is the case, then you
shouldn't be a week negotiating party; because the trick is that the success
fee will be the result of multiplying the negotiated sum of advisory fee by 95%
and this would be fair rate you know.
The
accelerated process of your initial offering is expensive but there is no
better alternative to it when planning your company's recapitalization. If
you don't use this approach, you might never find an investor even after being
an unfavorable competition in the market.
If you know you want to succeed in finding
capital for your company, don't waste time putting up any IPO notice.
The expensive accelerated process is the
fastest and the best alternative for you.
This article does not discuss other
alternatives since it presumes you have tried other alternatives but failed
before deciding to use the alternative of the accelerated process that
guarantees success in accessing capital within the time frame that meets your deadline.
This process is expensive because another
firm is responsible for your success. The appropriate PE firm uses your
advisory fee to launch an effective marketing campaign for your initial
offering, by tapping its own investor base; which you won't have access to
unless you have committed to the process.
It has taken the firm multiple decades to
build its investor base through years of commitment to finding other companies
that were able to commit to the process for success before you.
Those companies succeeded and you too can
succeed, if you willingly commit to the process.
Since your success depends on your
commitment, you should make the commitment first and by so doing you will be
ready for success.
Here are six tricks to succeeding in negotiating
a favorable advisory fee to be paid upfront as your commitment:
1. Plan
with your management team; know how much you can comfortably afford for your
success fee if you succeed.
2.
Discuss your strategy of raising the success fee, independent of the fund you
need.
3. Sum up
your success fee by a fraction of 95% of the total amount you have planned to
pay; that will be convenient to your team, to provide same at a deadline, with
or without an installment plan provided by the firm.
4. Record
the balance of the fraction as your negotiable advisory fee.
5. Once
you have arrived at this metrics of success in the accelerated process, contact
the appropriate PE firm to pitch your initial offering and keep your
deliverable presentation handy before contacting the firm.
6. Once
the firm asks for your presentation, send it without delay and state at the
sign-off page the amount you are able to pay upfront as advisory fee.
You've
learnt six simple tricks. Wait & see in 3 weeks, you will get a mail or phone
call congratulating you for having won an approval for the commencement of the
funding process, sign a contract.
The accelerated process for
initial offering
If you have won an approval, you should
get ready to respond to make your first payment through the option provided by
the firm.
As soon as you are able to make your
initial payment, you will be required to schedule a due diligence meeting for
the next four to six months, and once completed, you will get the confirmation
to proceed to the next stage of fulfilling terms in the contract you signed
before paying your advisory fee.
This is where you know your funding is
approved, and you pay the success fee as soon as you are funded.
At this
point, you are ready for a negotiation, the next stage is find your PE firm.
Look out
for the next article on the
criteria for finding a reliable venture capitalist for your capital planning
success.
But if
you can't wait for another week before pitching your initial offering; if you
have concluded on your public offering planning; if you want to launch the
accelerated process for your initial offering; and, if you have any urgent need
for capital that means you cannot wait…
Then click here to mail your presentation and a
reliable PE firm will review your presentation and pitch.
After the
review, you will be getting a response in the five business days from the day
of your submission. Click here to mail your presentation now.
Feel free
to make contributions to this article, ask questions, observe any error and
make corrections. Your feedback will be highly appreciated.
Interactive Section:
The
following are participation tips and special points to note for discussion on
this article.
Instruction:
Find out
which of the following assertions are incorrect. Mention the correct number
behind the assertion you wish to correct and state reasons why you think it is
wrong, then make comments to support your chosen assertion with stated reasons
for your corrections.
Assertions to consider:
1. It is necessary
for private companies to understand the relationship between the capital market
operators, before planning an initial offering.
2. Only a
public issuer can sell stocks which is a capital market instrument preferred by
investors because of its huge returns.
3. A
private company can also become an issuer, but only after its initial offering
which is dependent on its capital.
4.
Capital planning for a private company considering an initial offering is
generated through bonds which are also among the capital market securities and
can be either corporate, municipal, government or any other bond.
5. The
government bond is the most secured bond in the capital market and the
government bond market is very big and its liquidity is also beyond comparison.
6.
Capital can also be got from a Private Equity firm; an option known as venture
capitalist; because of the interest in the firm in owning a large share of
company which it provides funds through its investor base.
7.
Choosing venture capitalist funding option is usually the fastest way to raise
fund for a private company that is considering an initial public offering.
8.
Venture capitalist funding is also an option for public issuers that have lost
the trust of investors in a period of repression and want
to recapitalize before another public offering.
9.
Venture capitalist funding is also a good option for private and public issuers
that have mismanaged a bond and need a bailout capital that will reassert their
ability to pay back their debt.
9a. Other
bond markets will not respond to their appeal at that critical moment and the
assets of the company could be lost to the initial bond market, if care is not
taken to recapitalize before the end of the bond duration.
10. The
venture capitalist funding is actually the best option
for recapitalization or capitalization prior to an initial
offering or after an unsuccessful public offering.
11.
Venture capitalist funding is the best way to access other forms of equity such
as growth equity and transportation equity, and is strongly recommended for all
companies and institutions owning any form of capital market instruments,
especially stocks and bonds.
Conclusion:
Once the company provides the initial
offering pitch and a quality presentation stating its need of the firm and the
PE firm approves it, the company will be required to sign the contract
documents after a successful negotiation and the funds will be released, once
due diligence is complete and the company gets a high rating for its investor appeal.
You might begin considering this option
today, then you need to get a few days trail of what is involved.
This article has articulated the points
you need to note about access to capital and the topic discussed has been
" Six Simple Tricks to Successful Funding Approval with Good Capital
Planning"
The next article will stir discussions on the criteria for finding a
reliable venture capitalist for your capital planning success and will equally give a formal
response to your observations and contributions to this article.
Now make your contributions.
And see
you in the next article.
Francis B. Isugu
Continental Marketing Strategist,
Bold Step Capital Securities Inc.