Funding

Introduction

Raising finance may be fundamental to delivering the ambitions you have for your business. Whether it is the start up capital required to breathe life into your business or the development capital you need to take the business onto the next level and deliver the exit valuation you want, we have the knowledge, experience and contacts to make your plans a reality.

Types of funding

There are so many types of funding available to businesses nowadays that it takes a lot of time and effort to fully understand the availability and implications of each for businesses at different stages of their life cycle. Rather than trying to navigate this minefield themselves, many clients have come to us to tap into our expertise.

In broad terms funding comes in the form of equity, debt and mezzanine finance although, as already stated, with so many different and nuanced instruments available it is very difficult to make generalisations.

Equity

This type of funding involves relinquishing a share of your business in return for the capital you need to deliver a growth plan. By not having to make capital and interest repayments (as per a debt instrument) the capital raised can be fully employed in growing your company. Naturally though, having another shareholder in the business will change the dynamics of how the business is run to an extent – there will be an additional voice at the boardroom table as well as consent matters which will require the funder’s approval.

Equity investment is often closely aligned to start ups (given that there is no existing revenue stream to service debt) as well as more mature businesses.

It is so difficult to do justice to the complexity of such funding that we would strongly encourage anyone interested in raising equity finance to engage with us so we can explore its implications in much more detail and put them into the context of your specific business.

Debt

Debt instruments are most often associated with mature businesses which have revenue streams which can service the borrowing. When thinking about debt, it is often best to consider the two s’s of serviceability and security (possibly both corporate and personal). Both will most often be required to obtain funding of this nature although (and there is a caveat to pretty much everything!) unsecured cash flow lending has returned to the market for companies of certain characteristics.

Mezzanine finance

Mezzanine finance is a term used to describe a range of instruments which are hybrids of traditional debt and equity. They tend to be characterised by taking the basic form of debt (involving capital and interest repayments but possibly staged in a different manner to a traditional loan), requiring less security and therefore generating the lender a higher return through higher interest rates, profit shares, equity options and/or redemption premiums.

Processes

It is, again, difficult to generalise about such processes especially when some may involve raising further capital from existing funders but, generally, we would:

  • Undertake planning procedures to quantify the funding requirement, understand how it will be applied within the business, assess the types of finance which will fit the business’ profile and identify the most likely funders
  • Engage early with funders to gauge appetite, most likely using a funding presentation to furnish the funders with enough information to form an early view in the first meeting
  • Prepare tailored information, most likely a business plan supported by a fully integrated financial model, to enable funders to make a more detailed assessment of the proposition
  • Work with the funders through further meetings and information releases to get them in a position where they can expediently work through their own internal processes and take the opportunity to investment/credit committee
  • Appraise and negotiate the funder’s formal terms
  • Manage the due diligence process on behalf of our clients
  • Work closely with our clients and their legal advisers throughout the legal process to completion

Commentary

Raising finance can be a complex process involving terminology, structures and approaches which you may not be familiar with. So why not come and to talk to us, we can help you avoid the pitfalls it has taken us many years of day in day out corporate finance experience to identify. As already mentioned above, it is so difficult to do justice to the complexity of the funding sector in writing that we would strongly encourage anyone interested in this type of funding to engage with us so we can explore its implications in much more detail and put them into the context of your specific business.