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Transaction Costs

When contemplating a capital raise or M&A transaction, the parties should be aware of the costs. The following are current, typical ranges of returns for debt and equity sources:

  1. Senior lenders/banks 3.5 – 5.5%
  2. Asset based lenders 4.0 – 9.8%
  3. Mezzanine lenders 8.0 – 16.0%
  4. Private Equity 20.0 – 28.0%
  5. Venture Capital 25.0 – 35.0%
  6. Angel Investors 25.0 – 30.0%

In addition to the variance in rates of return, there may be significant differences in the terms and conditions of each tranche of funding. While the above three debt sources receive actual interest payments or deferred interest, the equity investors receive a return only upon an exit. The various exists may involve an IPO, partial sale, recapitalization, liquidation, or outright M&A transaction. Often, the venture or angel equity tranche involves some form of interest coupon via preferred stock, as well as a conversion to common shares.

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