There’s something reassuring when a project has a plan. A plan takes a large, complex endeavour and breaks it down into a sequence of bite-size chunks. Importantly, it gives a project team control over the task at hand, knowing that each effort will contribute to the larger outcome.
That’s how we attack the capital raising process at businessDEPOT.
We break the project down into discrete steps that help ensure control and certainty in what could otherwise be a daunting effort. There are 4 phases with clear milestones and deliverables to ensure we leave no stone unturned and are fully prepared to bring new capital into a business. Here’s a breakdown of the 4 phases:
Phase 1 – Preparation
Once a capital raising path has been set, work begins immediately.
This is the stage of the process where the deal team has the most control over timing and progress. It’s where we and the business owner work to articulate the investment proposition and prepare all the due diligence materials.
The workload is relatively heavy and to make this manageable we’ve defined a specific process to walk the deal team through it. It is here that we do all the foundational work to ensure there are no surprises that can derail the process later, and that we can demonstrate to prospective investors why they should commit to the business.
The most important deliveries of this phase are a forecast [read why this is important] and an Information Memorandum [sometimes called an IM or a pitch deck].
At the end of this phase, we are ready to take the capital raising to market.
Phase 2 – Marketing
At this stage, we’re introducing the transaction to investors. This can be done with varying levels of confidentiality depending on how focused or broad the target investor list is and how well the business is known.
The objective is to narrow down the target investor list to identify the specific investors who are most qualified to participate in the transaction at that moment in time. Ideally, the business owner and management team are largely hands-off in this phase of the transaction.
This part of the process has the most uncertainty in terms of the time it may take. The process of contacting investors and having the opportunity to present the initial investment case takes time and needs to be done in the right way. Sometimes it can be extremely quick but it’s also been known to take longer than expected. You don’t know until you go to market.
The important thing is moving on from this phase with the right investors for the company will underpin success in the later stages of the transaction. This phase ends when we have the right investors ready to undertake full due diligence.
Phase 3 – Due Diligence
Moving ahead with committed investors, this phase is extremely important to ensure that all parties have the chance to verify and quantify the opportunity. The business owner, management team and investor will work together to ensure that the growth path, transaction, and all parameters are known and agreed.
This stage of the transaction involves a high level of confidentiality so investors can inspect the inner workings of the business, its accounts, customer contracts and operations.
We undertake management meetings with the investor and create a virtual data room for the investor to securely access documents. How accessible a business owner and management team can be in this phase will determine how quickly it moves forward.
The endpoint of this phase is final conditional offers with the best investor possible.
Phase 4 – Exclusivity and Documentation
By this stage, the investor and business owner are walking a path towards finalising the transaction.
The investor will usually undertake final confirmatory due diligence to verify their understanding built in the main previous phase. The investor and business owner are operating as if the transaction is done and working in partnership without confidentiality constraints. The goal here is for the investor to move to an unconditional offer.
Our final piece of work is to document the transaction using the agreed terms and the share purchase agreement that was disclosed earlier in the transaction. A well-run project aims to have no surprises at this stage as all issues would have been discussed in phases 2 and 3.
Signatures are inked, proceeds are transferred and all that remains is to plan the closing celebration!
Process, not pain.
We use a well-defined process that aims for a capital raise where variables are minimised, responsibilities are known and the path towards conclusion is clear.
Capital is the fuel that fires business growth. However, a capital raise needs to minimise pain for business owners, management teams and investors alike. Here at businessDEPOT, we do this with a clear and methodical approach.