The intended audience of this article is mid-cap private corporations with non-bankable capital requirements. However, this also applies to non-bankable small and large cap companies, as they face the same challenges.
Here are the key points we and our partners consider when looking to make debt or preferred equity investments, and these are in no particular order, yet all apply. This assumes that your entity and opportunity are suited for raising and securing capital:
1. Amount of capital required: Be realistic about the number, and I mean do not aim too low either. For an investor, it is a nightmare to find out that a target company has run out of the money invested and is seeking more.
2. For what purpose – Use of Proceeds: We look at the Use of Proceeds as the road map, and our team reviews the way the target company is deploying the capital. This is simply good business. It makes us comfortable, keeps the entity on track, and enables future fund raising to be easier through us.
3. Schedule of Use of Proceeds: It’s rare that a capital raise is completely required for deployment tomorrow. Be clear on when money is really needed, how much per that time frame, and when the subsequent tranches are required. It may vary from period to period. That’s fine. Be clear. Be specific. Think it through.
4. Securing our Return on Investment: If you’re a new target company for us, and receiving capital in tranches, we may wish to secure the return on investment from each tranche as deployed.
5. Repayment of Principal Schedule: What you put forth has to work for you, so as not to overburden your cash flow, and it has to work for us as well. Make your first attempt as realist as you can, and we will take it from there.
6. Your skin in the game: I want to be clear on this – I’m not talking about fees. Brokers want fees up front and use “skin in the game” as their rationale. What I’m saying is, if you want, example, $100M of financing, and you likely don’t have a bankable deal, I want to see what cash you’re putting up right now that will be used with ours in the Use of Proceeds. This isn’t cash that you’ve invested in your company over the past few years, or few months. This is cash that’s ready to deploy in this next phase of your business. The larger the number, as a percentage of your capital requirement, the easier it will be to secure the required capital.
Please note, here are several, but not all, limitations to consider:
- We do not invest in dreams. We invest in businesses. If you have an idea that requires $100M USD of 100% debt financing, and you’ve invested $10k into having a a business plan written (zero skin in the game, as far as we are concerned), you’re likely not suited for us.
- We do not invest where the capital is going to be used to pay for past debts/sins. We are looking from today forward, and are funding growth, not funding the past.
- We do not invest where the capital is going to repay shareholders loans.
Please give the key points and limitations serious consideration, and if you are comfortable, please submit a brief (please be brief) executive summary to firstname.lastname@example.org along with your complete contact information, and make sure that you address the 6 key points in a separate document. We are happy to review complete submissions only. Should we move forward, we can review a full business plan at the appropriate time.
Thank you for your interest.
Phone: +1 (902) 488-9734