By Joshua Celeste | One of the most frequent conversations I have with clients attempting to start a new venture, development or project is “How do I raise capital?” How to secure equity capital – debt and equity – can be the life-line to a venture.
For most balance sheet “light” companies (startups, high-growth companies and single-purpose real estate development entities), financing available through traditional commercial debt will prove difficult to obtain and insufficient for all of the capital needs, … leading to the pursuit of equity capital. Basically, equity financing describes an investment of capital into a company for a share of business ownership, which, ultimately, dilutes the company’s existing ownership.
Clients commonly obtain equity capital via a “private placement” of securities. Generally, this type of transaction offers the sale of unregistered securities to investors, provided there is no public offering, public solicitation or advertising (in addition to a number of other criteria that need to be meet to comply with Regulation D of the Securities Act of 1933).
Stepping back, however, all efforts to raise capital through a private placement must start with a well-thought-out and reasoned business plan. It forms the basis of any dialogue and interaction with a potential investor; it should present and explain the concept, set forth the capital necessary to effectuate the concept, and address the critical timeline. This business plan essentially validates the business.
Once the business plan is created and vetted, the company can move forward to find potential investors. Participants in offerings can range from “friends and family” to strategic investors to institutional investors. Each group of investors brings different expectations: deal terms, return-on-investment requirements and risk-profile.
The process of raising equity capital then moves to the “pitch,” the face-to-face opportunity for the company to explain and elaborate on its business concept and demonstrate the strength of its management team. A savvy investor will focus on the merits of the business concept as well as the personal passions and strengths of the individuals who are charged with executing the business plan. This pitch turns into the make-or-break moment for investors in the evaluation process.
It takes a lot of time and energy to create enough confidence with a potential investor to secure an investment but for clients seeking equity capital, a successful private placement can elevate a business concept into a true business enterprise. For more information, Contact Joshua Celeste.