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Raising Capital


A capital raise, as opposed to selling the entire business, is a process of balancing the availability of various types of capital with the needs and risk tolerance of the client. The optimum is to achieve maximum leverage (from debt) without unduly burdening the company. Also, critical to the best outcome is a clear understanding of the client's real cash flow for the next five years.

The investment bank should carefully present various capitalization tables (scenarios) to market sources. In some cases, senior debt is a component separate from mezzanine debt. Larger lending institutions will usually provide both types of debt, as well as equity tranches. This one stop shopping can facilitate less complicated inter creditor agreements. On the other hand, the asking rates of return (blended) may exceed what is available from completely independent sources of funding.

Many smaller companies seeking growth or survival capital are concerned about venture funding. They do not want to give up control. So the most significant dilemma facing clients is how to raise the needed funds without a large equity infusion. For raises of less than $2 million, there are very few options, unless the cash flows are strong and increasing each year. One potential remedy is to value the intangible assets (IP) as a source of collateral for the investor(s).

As an IBanker, we have raised all types of debt and equity, including preferred and different rounds of common stock. We prefer a retained and exclusive agency relationship with our client. These agreements receive our undivided attention, and reduce any marketplace confusion or appearance of a deal being "shopworn." Lastly, since we have modeled the cash flows for the investors, we can explain and support them so that the covenants of the debt deal are less onerous.