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December 11, 2021

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3 Reasons an M&A Advisor Is Worth the Cost

barenbergcapital / M&A / acquisitions, business, buying, M&A, mergers, selling, value /

August 1, 2017

A 2016 study asked CEOs who had recently sold their businesses with the help of an investment banker whether their advisor added value. For a full 100% of respondents, the answer was yes, with 69% reporting a “significant” impact.

Eighty-four percent of the owners achieved a final sale price equal to or higher than the initial estimate provided by the advisor.

With these kinds of outcomes, one would think hiring an advisor would be a no-brainer. But many would-be sellers are skeptical of the cost of bringing in outside help. Part of the problem is that the specific value-add of an advisor can be opaque until you actually start working with him or her.

Here are three specific ways a good advisor will help you rethink your business to increase valuation and improve terms before a sale.

A successful advisor will…

1) Identify weak links in your management team.

Everyone has blind spots. This is particularly true for founders who have run their companies for decades and built the business from the ground up. There are almost certainly processes that only you have institutional knowledge of, and there are probably management team members you hired years ago who aren’t equipped to handle the company’s current scale.

Both weak management teams and over-involved founders scream risk to potential buyers — leading to lower valuations and/or unfavorable terms (e.g., earnouts as opposed to all-cash deals). It’s easy for owners to understand this risk theoretically, but much harder to spot it in your own business. An advisor can provide the outside perspective CEOs need to identify these blind spots and execute on an action plan before bringing the company to market.

Investors and their Incentives

barenbergcapital / Corporate Finance, Equity, Funding, Startups, Venture Capital / accelerator, angel investors, Crowdfunding, investing, venture capital /

July 7, 2016

It is incredibly important to understand the incentives of investors when you are raising money. This used to be fairly easy – you raised money from Venture Capitalists who wanted to see a big return on their investment. The best of these investors were incredibly focused on doing the one thing they did well: investing in technology companies.

The world looks different now. There are a lot of different types of startup investors, each with a different approach to investing and different incentives for doing so. While they’d all prefer not to lose money, the differences in how their incentives and expectations are structured are critical in understanding how to decide whether or not to work with them, how to negotiate with them, and how to interact with them over the lifetime of your relationship.

Below, I’ve tried to highlight the key motivations and structures of each of the investors you are likely to encounter. While I haven’t attempted to catalogue all the ways in which the incentives of investors influence their behavior – sometimes to the detriment of the startup founders – this should work as a starting point to think through those issues.

One big incentive difference that I’ve chosen not to address here is preferred vs. common shareholders. That creates a whole other set of questions that is out of scope. Assume the investors below will hold preferred shares.

VC Firm
The classic startup investor that is primarily working to achieve returns for the funds they’ve raised from a set of Limited Partners. The partners at these funds are usually paid in two ways: they earn a % of the funds that they’ve raised and they earn a % of the return they make on the total fund from which they invest in you. These firms generally raise further funds based on the performance of earlier investments.

While investors make money off their management fees (the % of what they’ve raised), the big pay outs only happen when they return a multiple of the total capital raised. Because of how concentrated venture returns are, VCs generally invest only in deals which they believe will return all or most of their returns.

Angel [1]
Usually a wealthy individual who invests their own money in startups. Sometimes these are people that made money through their own startups. Sometimes they are coming from different industries, and sometimes they inherited their wealth. It can be useful to know which category of angel you are talking to.

Angels have become hugely important to early stage startups as the number of companies have grown beyond the financing ability of traditional funds. More importantly, the wide distribution of Angels has materially decreased the access barrier which founders face when raising capital.

There are a lot of different incentives at play for Angels. While many of them are hoping for huge financial returns, many also want to be able to brag about having invested in a hugely successful startup. What’s strange is that Angels often just want to brag about investing in startups, regardless of the success of those companies. Investing in startups has become a badge of pride in a lot of circles.

Though most angels invest as a part time activity, there is a wide range in the amount of time and effort they devote to investing. Knowing that they have other things on their minds should change how you approach and interact with them. You also need to understand how experienced they are, the size at which they invest, and how much time and energy they’ll actually spend on their investing.

At one end of this spectrum, you’ll find angels who are essentially small seed funds. They invest significant amounts of money in startups, and do so frequently. In the best case, these investors have a deep understanding of the companies in which they invest and can be incredibly helpful. These investors understand that they are likely to lose all their committed capital, understand the standard terms and instruments through which startups raise money, and are generally low maintenance.

At the other end of this spectrum, you’ll find small, inexperienced investors who just want to invest in startups wherever they find them. These investors will put a small number of small checks into whatever company they can get into. Because they are unfamiliar with how startups work, they are often hard to deal with and incredibly focused on the risk of losing their principal. These are investors you should avoid unless you absolutely need them.

Accelerator
Accelerators are, for the most part, a subset of VC firms where there are professional investors who raise funds from outside parties to invest in startups. They usually fund more companies than classic VC firms, and do so in batches. Similarly to a VC, most accelerators need to demonstrate return to investors to continue to raise funds.

Accelerators also have a non-financial incentive – they need breakout successes to prove that they are providing operational help to companies and actually “accelerating them.”

Syndicate

Syndicates come in a number of different flavors, but are generally groups of angels who come together to invest in a single deal. Usually, these syndicates have a lead who will be your main point of contact. This lead usually puts money at risk for a return and gets some sort of performance fee for the other funds that they bring into the deal.

Watch out for syndicates where the syndicate runner is taking a management fee on funds raised and is encouraging you to raise more money than you think is wise. Also, be careful with syndicates since you don’t know ahead of time who will invest in your company, and might find that one of the investors is a direct competitor who just wants some privileged information.

Crowdfunder
Any and all comers on the internet who pre-order an unbuilt item in the hopes that it will some day get built and be cool/solve a problem. They’re not expecting financial return, but do want regular updates on what’s going on with the project and when they can expect delivery. Hiding problems is a lot worse than transparently failing to deliver.

Upcoming Financial Crisis and How to Profit (Part 1)

barenbergcapital / Credit, Debt, Economy, Equity / Anthony Licausi, Barenberg Capital Partners, bonds, credit, crisis, currency, debt, economy, equity, Federal Reserve, financial, global, junk, markets, stocks, subprime, unemployment /

April 26, 2016

Upcoming Financial Crisis and How to Profit (Part 1)

by Anthony W. Licausi, April 26th, 2016

The financial crisis in 2008 was merely a preview of much deeper problems within our financial system, the so-called “tip of the ice berg”. The normalcy bias prevents many people from facing these problems, let alone even attempting at beginning to understand them. I enjoy studying finance and economics entirely too much to fall victim to this mental state, not to mention I feel that I have a moral obligation to explore these issues our global economy is now faced with and provide people with a way to actually profit from them (or at the very least, not lose half of their retirement when the equity markets plunge again).

I’m going to assume the majority of people reading this already have a concrete understanding of what happened during 2008, so I won’t reiterate the details. Instead I will focus on what is happening now and how it is going to affect us, primarily in the way of our investment portfolios. Some of my constituents in the finance world may not see this as prudent, as the larger institutions and the mass media will tell you that our economy is doing great. I may say that too, if I was in the business of collecting fees based on AUM, but I’m not. Others may say I’m “fear mongering”, and I would tell those who believe that to click the link on the aforementioned phrase of normalcy bias. You can make like an ostrich and stick your head in the sand, pretending like nothing is happening and hoping for sunshine and rainbows when you pull your head back out; OR you can choose to educate yourself and hold your head high for taking your financial future into your own hands and maybe even profit from this next financial crisis looming on the horizon.

After the housing bubble burst, Wall Street quickly had to devise a strategy for new products to peddle to consumers. With names like “high yield bond funds” and “focused credit funds”, investors began pouring money in with many of them having little understanding of the underlying investment strategy, let alone that these funds are essentially built on buying junk bonds. The assets that make up these funds are broken into three tiers or investment levels with level 1 investments being the most liquid, level 2 investments not having a readily available liquid market, and level 3 investments being almost impossible to value and not having a liquid market at all. Many of these funds have over 50% of their money in level 2 and 3, with some funds having over 90% of their assets in level 2 and 3, meaning in some cases that only 10% of the fund can be readily liquidated. A recent SEC N-Q filing by Deutsche High Income Trust shows $176mm+ in debt holdings, with only ~$2.4mm in level 1, ~$173mm in level 2, and ~$1mm in level 3. This translates to less than 2% of the investments having a readily available liquid market.

Multiple funds that operate using this strategy have recently frozen redemptions, as investors look to cash out causing the fund to sell their holdings, creating excess supply in the market which further depresses the value of the fund, causing more redemptions, and so goes the “death spiral”…

iShares iBoxx High Yield Corporate Bond Fund (HYG) is a popular ETF which broke a key support level at $90/share last June and has been in a down trend ever since. Keep in mind that HYG does not hold any level 3 investments but the majority of these funds do; debt that could turn toxic any minute much in the same way mortgage-backed securities did in 2008. In an article written in Time magazine in September of 2015, the Office of Financial Research, setup inside the Treasury Department after 2008 to conduct forensic investigations into the causes of financial crisis, named corporate debt as it’s biggest concern. “High yield bonds in particular were a cause for growing consternation…..increasing the risk of a domino effect were the corporate bond markets to plummet as interest rates rise.” Legendary investor Carl Icahn is concerned as well, saying the long-term low interest rate environment “forced a bubble….pushing people into high yield bonds” Will we follow Japan and Europe into negative interest rate territory to prevent this bond bubble from bursting?

Other securitized-debt has been packaged and sold to investors as well in these bond funds, mainly built on both sub-prime auto loans and student loans. After the financial crisis when automakers took huge sums of money from the government, they needed to create the next wave of sales to earn profits again and they did this by doing exactly what they are supposed to do: sell cars. I don’t know of anyone in this country that buys cars for cash, and even if they could they wouldn’t because we have access to that amazing financial tool called credit. Over 90% of General Motor’s car buyers use credit to finance their purchases and as of 2014, 83% of GM’s loan book was subprime. These loans have already begun to default at a rate that was last seen during the 2008 financial crisis. Auto loan delinquencies reached 4.7% in January, the highest since February 2010, according to data from Wells Fargo, cited by Bloomberg. During the Financial Crisis, delinquencies topped out at 5.4%. During normal times, they range from 2% to 3%

When people are given access to credit for things they really can’t afford, the allure of owning that shiny new object causes irrational decisions to be made. I believe people have every intention of making their debt payments, but these same people default on loans because sooner or later they cannot afford to pay them- but if the U.S. economy is rebounding and we are doing so well, why can’t people pay for their cars? I’m not going to dive into politics here, but a recent article in Fortune titled “Donald Trump is Right: America’s Real Unemployment Rate is 40%” should shine a brighter light on what is really happening in the U.S. at the jobs level.

To get a larger picture of what is happening here, let’s move away from the debt markets for a moment and look at what is happening in the equities market. Since the financial crisis of 2008, the rise in the equities markets has been in direct correlation to the increased Federal Reserve monetary base. Coincidence? I highly doubt it….

It is no surprise that the Fed’s quantitative easing policy drove stock market prices up as interest rates fell to record lows and investors were looking for returns somewhere. The only place left for most investors to get that return was the U.S. equity markets. According to my research on the St. Louis Fed website, recessions happen every 2-9 years. That would put us in a recession in 2017 if my math is correct, but there is a fundamental problem with the very definition of “recession”. A recession is defined by a decrease in GDP for two consecutive quarters, so by the time we hear that we are officially in a recession, we have already been in it for 6 months! At that point, the big players have already begun capitalizing on falling prices by shorting securities so the premise of this article is to illustrate the immediate need to assess the current situation we are facing and position ourselves to take advantage of it before we hear about it in the mainstream news. Unfortunately I have yet to find a crystal ball, so none of us know exactly when things will begin to unwind, but we have had numerous conversations with many large fund managers that see a credit/currency crisis beginning sometime between October-November of this year, 2016.

I’ve spoken to quite a few people (on Main Street) about my growing concern that we are headed for the next financial crisis, and many of them have the ostrich syndrome I mentioned earlier. Let’s add some color to this scenario to really drive the point home for them: if your portfolio loses 50% of it’s value (which happened to many main street investors and retirees during 2008), how much return must you earn in order to get that 50% back? If you said 100%, congratulations, you remember how to do elementary level math. If we look at the “Rule of 72” which is a shortcut to estimate the number of years it would take to double your money, at 10% it would take 7.2 years, and at 5% it would take 14.4 years. So on average, let’s say it would take about 10 years to earn back the money that was effectively wiped out, maybe more, maybe less.

We will examine this further in Part 2 to be published by next week…

Insights from the U.S. Venture Capital Fundraising Market in 2015

barenbergcapital / Venture Capital / funds, venture capital /

March 28, 2016

*The following article is from Sapphire Ventures.

At Sapphire Ventures, we make a habit of analyzing the U.S. venture capital fundraising market to inform our investment perspective as a limited partner (LP) in early-stage VC funds. Some of this review informs our prediction pieces, such as my colleague Elizabeth“Beezer”Clarkson recent article Reading The Venture Tea Leaves For 2016.

Looking back at 2015, data provided by the National Venture Capital Association (NVCA) and Thomson Reuters offers some interesting insights, including the clear slowdown in fundraising over the last few quarters, the relatively low amount of commitments to first-time funds and the rather large amount of commitments to relatively few managers. Following are a few tidbits from our review of the data.

1. Commitments to venture capital were down quite significantly in the second half of 2015.

In 2015, LPs committed nearly $27 billion to 234 funds. Towards the end of the year, the pace of funds holding closes slowed both in terms of dollars raised and number of funds raised. This drop in commitments could indicate a shift in LP sentiment in the market as macro pressures continue to loom, or it could just be a matter of timing of fund cycles. In general, it seems like most LPs are fine waiting on the sidelines to see how the macro plays out for at least one quarter before committing to new funds in 2016.

2. Both first-time and follow-on funds were affected by this slowdown of commitments.

Moreover, the slowdown in number of funds closing is clear for both first-time and follow-on funds. There were 49 first-time funds that closed in the first half of 2015, but this number dropped to 33 first-time funds closing during the second half of the year. The number of follow-on funds also decreased from 86 in the first half of the year to 66 in the second half.

Further, the absolute number of dollars committed to first-time and follow-on funds dropped rather significantly, as seen in the chart below. Average fund size also dropped towards the end of the year, particularly in follow-on funds, which had average fund size drop from $179 million to $124 million from the first to second half of the year.

3. While 82 first-time funds were able to raise capital, the total amount of dollars committed to these new funds was relatively small.

The 82 first-time funds that were raised accounted for approximately 35 percent of all funds that closed in the year by number; although they comprised only 12 percent of the total dollar commitments by LPs. On the other hand, there were 152 follow-on funds that closed, equaling 65 percent of the total number of funds and comprising 88 percent of the total dollar commitment.

S&P Issuer Credit Ratings Definitions

barenbergcapital / Credit, Debt / bonds, corporate, credit, debt, issuers, ratings, S&P /

March 21, 2016

Long-Term Issue Credit Ratings*

AAA

An obligation rated ‘AAA’ has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA

An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A

An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB

An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB; B; CCC; CC; and C

Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB

An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B

An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
CCC

An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC

An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred, but Standard & Poor’s expects default to be a virtual certainty, regardless of the anticipated time to default.
C

An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to obligations that are rated higher.
D

An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
NR

This indicates that no rating has been requested, or that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.
*The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

Effective Business Plans and Questions VC Firms Will Ask

barenbergcapital / Funding, Startups, Venture Capital / business, business plan, entrepreneur, financing, funding, growth, startup /

March 2, 2016

Between the explosive growth in technology, readily available information on almost any topic and the regulatory changes occurring in the investment landscape (ie: Crowdfunding), entrepreneurs are in a better position than ever to start a company and successfully raise capital.

With that, there are some core questions that your business plan must address if you plan on succeeding in securing an investment from anyone, let alone a venture capital firm.

Your plan should address these questions:

Why and how is your company going to become a dominant player in an emerging market?
How large is the addressable market?
What problem are you solving?
What differentiates your solution?
Is your technology proprietary?
How and when are you going to become profitable?
Who are your customers?
How have your customers reacted to your product or service?

For an informative article on assembling an effective business plan, go to http://vcexperts.com/vce/news/buzz/archive.asp and click on the link for “Flight to Quality: Why Business Plans Don’t Get Funded.”

If you have a business or are starting a business that can answer these questions and are looking for financing, please contact us to see how Barenberg can help you.

20 Ways to Lose Your Funder

barenbergcapital / Corporate Finance, Funding, Startups / business development, capital raise, deal, finance, funding, growth, seed, Startups /

February 25, 2016

20 ways to lose your funder (Part 1)

David G Rose, Publishing Editor, TheWealthJournal.net (TWJ)

The rules for raising corporate and project finance have changed. Since 2008 the main source of funding has become the many channels through which private wealth flows into the market. See our article ‘Time to Call Time on Shadow Banking’ for further background on the growth of the non-bank finance market

At the outset it is best to flag up that you should forget most of what you ever knew about raising capital for your enterprise. Even leading corporate bankers are now acting more as brokers, assembling funds from a myriad of private sources for corporate and project financing. Be it through a bank, broker or other intermediary, you are dealing with people who are investing their own money. They are overwhelmingly successful entrepreneurs channeling an estimated 20% of their combined $56-trillion (say, $10-trillion) combined wealth into alternative and direct investment opportunities.

Also, non-bankers rarely have the ‘filtering’ resource that traditional banks have. It has long been the practice in the market that you will be dealing mostly with intermediaries or, what we at TheWealthJournal.net (TWJ) prefer to call Capital Raising Advisors (CRA’s). These are the people who sort the wheat from the chaff and ensure that the funder’s time is not wasted.

There are endless opportunities for you to alienate your CRA or funder. Beyond any doubt you will have put in hundreds if not thousands of hours (the ‘sweat equity’) into the project idea and inception. It is therefore saddening to see that a majority of proposals fail upon submission due to simple to avoid mistakes. Read here about the most common mistakes encountered by the market generally on a daily basis.

1. The Executive Summary looks like a sales brochure
It is overflowing with technical jargon, market overviews and fabulous images. But does not enable the funder to make a rapid ‘yes’ or ‘no’ decision. There have been countless books on how to write a business plan and we’re not going to spend time regurgitating all that here. The document that really counts, the door opener, is your executive summary (ES).

The ES, if done right, will open the CRA’s and/or funder’s doors for you. In the author’s experience the ES is, beyond any doubt, the single most important document in the funding process. Yet the vast majority of principals send out incomplete and confusing ES’s, if any at all.

In its most simplistic terms, producing an executive summary as a lethal weapon in your capital raising campaign amounts to utilizing a long established PR principle. Every press release needs to get the five-W’s into the opening paragraph in order to capture the attention of the journalist.

With the same objective, you need to get these five-W’s: Who, What, Where, When and Why into your ES. Add to that a soupçon of ‘H’, i.e.: ‘How much’, which can be presented as one sentence, and you have all the ingredients to ensure that you capture the attention of the CRA and, hence, the funders.

These are the five-W’s in more detail as applied to your ES, which should not run to any more than five pages:

WHAT
Describe what it is you are planning to do. Be it starting a software company, building a toll-road or solar farm describe it in as few words as possible. The shorter the description the better it will always work. Remember, the best propositions are always the simplest and easiest to explain. There is nothing wrong with including an illustration or other image of your project in this section.

HOW MUCH
This should come immediately after ‘What’ above. It is absolutely critical to say how much funding is required. This, after all, is what any funder wants to know right up front and, be absolutely assured, no CRA or funder is going to read an entire business plan (or even a poorly produced executive summary) in order to unearth this key piece of information. DO NOT present how you want this funding structured. Always leave the funding structure ‘open to negotiation’. By proposing a funding structure you will immediately close down dialogue with prospective funders whose structure does not match what you are looking for, and who might well be able to offer you an alternative, better deal.

Present how much you’re looking for in just one sentence such as: $5,000,000. Terms subject to negotiation.

Follow this with a five year forecast showing turnover and profit for each year. That’s all the funder wants to see at this stage. If they are interested, they’ll come back and ask for the full business or project plan. Don’t hound them for an answer.

WHERE
Is your enterprise going to service a particular country, region within a country or is it being prepared for world domination?

WHO
Edit your management CV’s from your business plan back to no more than 50 to 100 word bios for each of your key management. Be sure you have the three pillars of any successful enterprise covered: technical/product knowledge, sales/marketing and financial control. If you are an established company, say as much, and give a little about your track record and summarize your most recent years’ financial results and your forecast post-investment performance.

WHEN
Are you already operating, are you planning a specific start date or is your future growth or launch dependent on funding? Make your time frames clear.

WHY
Why do you believe that what you want funded is actually going to produce enough profit to provide an equity investor with attractive enough returns, or a lender to be assured the loan is going to be repaid? Present here the most relevant points of your market research and/or other evidence of the viability of your project.

The above ‘five-W’s’ advice has been presented to clients over many years. Some have actually produced their entire ES with these actual five-W headings, with an additional ‘How Much’ heading at the end. It’s been quite a delicate undertaking to direct these clients to simply embed the information inside their own text.

2. E-mail overload.
You send the business plan, ES, drawings, permits, JV agreements, contracts, land leases, etc altogether in the first email, thereby overwhelming the recipient and clogging up their inbox. It will usually be deleted without a second glance.

3. Assigning file names
The icing on the cake in (2) above is not assigning proper file names to documents, zipping them up and then leaving it to the funder and/or CRA to unzip and open each file in turn to see what’s in them, rather than being able to see quickly from the file name.

Although this might seem obvious, it needs to be highlighted. Funders and their CRAs are busy people. Awaken their interest in your project by sending a compelling executive summary, do not overwhelm them with too many attachments and information – they will not spend their valuable time on it. Rest assured, they will not read them and your e-mail will be deleted.

A special touch to get on the right side of your CRA or funder is to prefix every file name with a three-letter code for your company or project name. Ie: Acme Energy Project = AEP, Mycorp Growth Funding = MGF etc. This makes it so much easier for the CRA and funder to manage your files.

4. Insisting on funder references.
You may not have heard of your funder. This is because this is a private market, where investor and investee engage in private transactions. This is one of the reasons why it is so difficult to extract any real data from the market.

When the market was still ‘shaking down’, as far back as five years ago, it was reasonable to ask for references because nobody knew anybody. Everything was brand new and, yes, the market became infested with joker-brokers and downright scammers. But most (definitely not all!) of those have either moved on and are now driving buses or twiddling their thumbs in dark cells around the planet.

You will not get any references from a Hedge, VC or PE fund. Nor will you get any from a multi-family office, private or direct investment fund. Don’t ask. It is usually best to rely on the information provided to you by your capital raising advisor (CRA) and the reason for this is simple. He/she will not get paid their fee until the deal is closed. So they are not going to waste their time on putting you forward to a funder if they are not absolutely sure there’s going to be a pay-off for them at the end of the day.

5. Spelling, grammatical and other errors.
Nothing looks worse than typing errors, misspelled names, unfinished spread sheets, poor layout etc. Don’t just rely on your spell check. Look at the overall presentation and readability. Did you know that it’s easier to read a document on screen that is only justified left? For no apparent reason, it is easier to read in print if justified left and right.

6. Financials are incomplete, inconsistent or don’t add up.
Accurate and properly prepared financials are naturally one of the key components of a successful project. Only include edited forecasts in your executive summary and show the full details in the BP. If either is incomplete or simply incorrect, then your chances are small that the CRA or funder will take you seriously.

To avoid this very common pitfall and if in doubt, or don’t have the in-house resource, hire a professional familiar with the format required for business planning and capital raising.

7. You refuse to pay any fees whatsoever.
This must be one of the biggest obstacles in this market. Principals take a stubborn stance against any kind of fee except the advisors success fee which is rolled into the backend of the funding amount. No consideration is given to the other costs involved in successfully closing the transaction.

It needs to be understood that in non-bank finance, as there has always been in any form of investment banking, fees are a contribution to the expense of the intermediary and/or funder. Due diligence costs money (which some funders will cover themselves) and then, once the transaction is under way the funder is not going to cover legal, banking, collateral and other costs when you can just walk away from the whole deal.

More recently, up-front fees have become less onerous and, in some cases, eliminated. Every process is different and, as in anything, check what you are paying for and what any refund conditions are.

Sometimes the CRA will advise that the executive summary, business/project plan or some other aspect of the submission needs more work. They will not want to spend too much time on it without having their time paid for as, from their standpoint, they can get ‘sucked in’ to countless deals, taking up a great deal of time, with no outcome. For larger financings that is going to burn up real time, the CRA might well ask for a fee to cover anticipated time and costs.

Some CRAs ask for a nominal fee to present the deal to the funder, and here’s why. A good proportion of clients are simply ‘fishing’ around the market and trying out different CRAs and funders. In these instances, the CRA can spend a considerable amount of time getting everything prepared in the way he knows a particular funder wants it before making the submission. Only to find that the client decides they no longer want to move forward, for whatever reason. This imposes great embarrassment on the CRA, and puts stress on the relationship they have with the funder.

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Startup Investing Could Get A Lot More Angels

barenbergcapital / Startups / Crowdfunding, investing, Startups /

October 28, 2015

Angel investing has long held an allure for those looking to get on the ground floor of a growing company and build wealth. After all, everyone wants a bite of the next Apple, and that opportunity could be right around the corner. Does that sound unlikely? With the innovation offered by venture capital mediums, Justin Darcy believes that possibility isn’t as far-fetched as you may think.

Justin, a Strategic ISV & Channel Alliances at Salesforce, is a seasoned investor, having invested in companies such as Meldium (acquired by LogMein), Screenhero (acquired by Slack), Mobileworks, Moveloot, Bloomthat, InDinero, Wundercar, and many others. He readily admits that traditional angel investing isn’t for everyone and isn’t totally accessible to most investors. He has found an alternate method: venture capitalist mediums like AngelList and FundersClub. Companies like these are changing the rules by bringing the power of crowdfunding to angel investing.

Traditional Angel Investing Isn’t Accessible

Justin found that the traditional method of angel investing didn’t work for him and certainly doesn’t work for the average would-be investor. This age-old system is usually only available to wealthy individuals and companies—or people with connections to them.

According to Investopedia, and angel investor is someone who “provides financial backing for small startups or entrepreneurs . . . . The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.” Carrying an entire company during hard times can be pretty expensive, though. And if the company goes under, the investors completely lose their investment. There is only a small percentage of would-be investors who have the time to properly vet and find the right investment, let alone amass the amount of capital required to make it worth the effort.

AngelList and FundersClub Are Changing the Rules

Rather than wait until he accumulated the net worth of the average venture capitalist, Justin sought an innovative and financially responsible way to get involved with startups and other projects that interested him. Companies like AngelList and FundersClub are bringing new ideas like crowdfunding to the table, and that is changing the game for angel investing.

2015 On Pace For All-Time Record In M&A Value

barenbergcapital / M&A / finance, investing, M&A /

October 28, 2015

2015 On Pace For All-Time Record In M&A Value by PitchBook

Introduction

As the year winds down and more and more data rolls in, we are keeping a close eye on the pace of mergers and acquisitions to see if 2015 can trump 2014’s record of overall deal value. Even though the fourth quarter could still produce some surprises, it is almost certain it will eclipse $145 billion in total deal value. If it does, we will surpass the mammoth tally of $1.5 trillion recorded last year. The total value of transactions closed in 3Q was down from each of the first two quarters of the year, but even if 4Q turns in only $323 billion in total deal value—the total value recorded in 1Q 2014—2015 will have seen a truly gargantuan $1.7 trillion across closed deals alone.

What’s interesting about that figure, apart from its breathtaking size, is that it will occur even as overall activity is sliding, albeit gently. The elevated price levels that produced the tremendous swell in aggregate deal value over the past year and a half was bound to lead to diminishing activity, eventually. Volatility sparked by a series of events including, most recently, the slowdown in Chinese growth, hasn’t helped matters, although the duration of such choppiness is still a matter for debate. Accordingly, the optimism and consequently appetite of dealmakers may be whetted once more. In addition, the contribution of private equity investors to overall M&A numbers remains somewhat uncertain as well. The PE industry is experiencing the unique pressures of having more capital than ever before to dispense, along with the necessity of having to do so while measuring up to prior outperformance of public markets, even as public equities remain quite lofty. In short, even if the wave of M&A appears to be cresting, there are plenty of variables that could keep it at an elevated level or accentuate the recent slackening further.

Overview

M&A

M&A across North America and Europe has remained highly active overall, even as things have leveled off somewhat in the past few quarters. After such heightened numbers, a decline wasn’t unexpected. Last quarter generated just over $437 billion in completed M&A transaction value across 4,494 deals, a drop from the $526 billion invested across more than 5,000 closings in 1Q 2015. Median deal sizes are up across the board and valuation multiples are still elevated, propping up capital invested figures and keeping the strategic exit ramp open for financial backers looking to offload businesses amidst global growth concerns. On a QoQ basis, overall median deal size was up 25%, while PE-backed add-ons alone were up over 100% and traditional platform buyouts 9%. The median 3Q valuation-to-EBITDA multiple came in at a high 8.5x, as well, greater than any other quarter last year. As we’ve noticed a paring back in terms of deal multiples in recent quarters, transactions such as the colossal Kraft-Heinz combination or the $8.5 billion Dollar Tree-Family Dollar merger that closed in July helped skew multiples higher for the quarter, while also significantly underpinning total invested capital.