Howland Law Firm Process
Raising capital can be a very involved procedure and quite scary. It is not often that tales are told of businessmen who had a cake walk doing this. But do not let this deter you, hundreds of successful attempts are made each year. Of these, 25% are interested from the start to progress and to go through the process of due diligence. 10% of them go on to initiate bona fide offer of funds, of which another quarter actually end up in an investment transaction. These figures demonstrate the difficulties faced with raising capital, so what are they?
The operation of raising debt or equity capital concerns the following:-
- Not having the correct plan in place that offers memoranda, and other key due diligence data.
- Not having a properly developed and fully comprehensive target investor list.
- Not properly acting upon the list and contacting them to develop due diligence action.
- Finally no negotiation of an investor offer.
To raise capital both you and your advisory firm must be fully committed to the act. Quite often firms who have initiated plans to raise capital have a pretty accurate time scale of almost one year. You must budget for resources to fully see the process through, both of time and money. This can be well over 1,000 hours of extra work to be factored into the equation.
To draw up a comprehensive and viable business plan will take at least 200 hours. In this plan are laid out: client interviews, financial and business reviews, market research , the development of a business model, the overall strategy, and coming up with and proofing the whole business plan. Whilst you are busy with this, your advisory firm has to put together a proposal of memorandum and organize the relevant due diligence materials.
Following on from this the next step of the capital raising procedure is the targeting and development of a prospective investor list. You will be surprised to know that the average number of prospective investors on a list is just under 170, and these are at the pre-qualified stage. All these must be contacted with the correct information and details.
The basis of a selection and qualification is to some extent determined by the actual investor’s leaning towards a specific transaction.
Forming a bond and good relationship is of extreme importance when dealing with the list, many investors look for opportunities from referrals from contacts. You must open up both this relationship and a new one with the investment company. Understanding the investment company will give you indicators of how to present to them.
Negotiations over the offer can take considerable time, often there are delays because something is not explained properly and could not be understood. The pointers below will hopefully help speed up the procedure.
- Introduction – This is your first chance to impress, make the message clear.
- First Pitch – If you get to this point you are ahead of most capital seekers.
- Due Diligence – Is everybody on your referral list being contacted by the investment company? Find out the questions they are asking. What information are they requesting? Find out a guesstimate of the real interest in you.
- Full Partner Pitch – Now you are really in the ball park. You have managed to get on the short list. Ask before presentation for any issues they want clarification on, go in pre-armed with the relevant information. After the pitch make sure you get candid and full feedback, ask if there were any issues that need clarification. Then follow up in a timely matter.
- Term Sheet – This will be a decision to move forward.
- Syndication – It may be the case that the investor wants co-investors to come on board also. And be prepared to begin the whole process again. This might be just security, or it might be a whole new ball game.
- Closing – When everything has been clarified, understood and re-understood. Never take your mind off the goal, always think how you can CLOSE the deal.