RAISING PRIVATE EQUITY

Raising equity, diluting oneself, and asking someone to share the first-loss risk of the business involves addressing a variety of questions, as well as disclosing key information related to the nature and prospects of the business.

THE BUSINESS

  • What is the current and future nature of the company’s business? At the strategic, operational, legal and financial level?
  • How much capital is needed? Why? How will it be used?
  • What are the uses of funds and over what time period will the funds be spent?
  • Is the company’s project fixed and stable? Are there elements of it which may change in the future?
  • What are the key risks that could have a significant impact on the company and its project? Do these impact the company’s financial forecasts? Also the cash flow forecasts?

INVESTORS

  • On the basis of the expected returns, what are the investors that could be interested in participating in the proposed transaction? (Our book running searches typically generate 20-50 potential investors.)
  • Within this group of potential investors, which investors are most aligned with the objectives of the company? Of its shareholders?
  • Which investors can best contribute to the growth and development of the company? For example, by contributing know-how, industry contacts, technical knowledge, human resources, etc.

WHAT IS THE SELLER ASKING? WHAT IS THE SELLER OFFERING?

  • What is the valuation of the business?
  • On the basis of this valuation, what percentage of capital is being offered in exchange for the capital requested?
  • On the basis of this “offer”, what is the expected return for the investor over the next three, five, ten years?
  • How does this expected return change when the operating assumptions change from “optimistic”, to “conservative” or to “pessimistic”?

THE PROCESS

  • What is the best way of structuring a process to identify the best investor both for the company and for its shareholders?
  • What is the dynamic of the agreement that the company and its shareholders must reach in order to protect its interests / optimize the returns of the capital to be raised?
  • What documentation needs to be provided when, in which part of the process and how can confidential information best be protected?
  • At what point in the process should an investor be given exclusivity and how?