Raising Capital

by Vance, David E.

• ISBN13: 9780387253190
• ISBN10: 038725319X
• Format: Hardcover
• Copyright: 2005-04-20
• Publisher: Springer Verlag

Summary

Most small businesses cite lack of capital is a major constraint on growth. "Raising Capital" focuses on non-bank sources of capital since banks only lend to companies that fit a very narrow profile. The topics covered include: (i) capital sources entrepreneurs can tap when they are too small or unusual for banks, (ii) angel investors and venture capital, (iii) where to look for angels, venture capitalists and other capital sources, (iv) how to pitch your company and close the deal, (v) deal terms and issues that arise when negotiating a deal, (vi) going public through an IPO or little known small public offerings, (viii) asset based lenders, and (ix) other financing vehicles including: bond, commercial paper, PIPEs and securitization. The scope of the book ranges from capital for entrepreneurs who have little more than an idea, to capital for top rated companies. An accompanying CD-ROM includes many of the forms, regulations and templates needed to comply with state and federal law on raising capital.

Table of Contents

Risk, Reward, Size and Time to Exit
Introduction	1	(1)
Understand Your Needs	2	(2)
What Is Capital?	4	(1)
Typical Sources of Capital	4	(3)
Risk, Reward, Transaction Size and Time	7	(1)
Risk Factors: Stages in a Company's Life Cycle	8	(3)
Factors Bearing on Reward	11	(1)
Transaction Size	12	(1)
Time to Exit	12	(5)
Self-Help, the Entrepreneur's Sources
Introduction	17	(1)
Self-Reliance	17	(1)
How Much Capital is Necessary?	18	(1)
Seven Strategies to Get Start-up Capital	19	(14)
Banks
Introductions	33	(1)
The Banker State of Mind	33	(1)
Bank Facilities	34	(3)
Underwriting	37	(7)
Quality of Financial Data	44	(1)
Bank Covenants, Terms and Conditions	45	(2)
Myth and Mythology	47	(1)
Are Banks Reliable Partners?	48	(1)
Bank Debt Is Good	49	(6)
Small Business Administration
Introduction	55	(1)
Overview	55	(1)
Eligibility	56	(1)
Mechanics	57	(1)
Underwriting	58	(1)
Collateral	58	(1)
Personal Guarantees	59	(1)
Documentation	59	(2)
Loan Covenants	61	(1)
Loan Programs	61	(8)
Asset Based Lenders and Factors
Introduction	69	(1)
Traditional Asset Based Lenders	69	(2)
Specialized Asset Based Lenders	71	(1)
Tranche B Lenders	71	(3)
Sale & Leaseback	74	(3)
Note Discounters	77	(2)
Factors	79	(10)
Business Models, Business Plans
Introduction	89	(1)
Why Is Capital Needed?	90	(2)
How Much Capital Is Needed?	92	(2)
Risks of Underestimating or Overestimating the Capital Needed	94	(1)
Market Assessment	94	(5)
Business Model	99	(6)
Marketing Plan	105	(1)
People to Execute the Plan	106	(5)
Angel Investors
Introduction	111	(1)
What is an Angel Investor?	111	(1)
Angels Go Where Others Fear to Tread	112	(1)
What is the Profile of an Angel?	113	(1)
Angel Investment Criteria	114	(8)
What Rate of Return Do Angels Want?	122	(1)
Due Diligence	122	(1)
Angel Investor Advice	123	(2)
Where Are Angels Found?	125	(14)
Venture Capital
Introduction	139	(1)
Risk versus Reward	140	(1)
Who Needs Venture Capital?	141	(1)
Scope of Venture Capital Investments	141	(1)
The Structure of Venture Capital Firms	142	(2)
Venture Firm Operations	144	(1)
General Criteria for Making an Investment	144	(1)
Oversight	145	(1)
Costs of Using Venture Capital	145	(5)
Valuation	150	(2)
Exit Strategies	152	(3)
Venture Capital Search	155	(8)
Structuring the Deal
Introduction	163	(2)
Investment Agreement	165	(1)
Valuing the Company	165	(1)
EBITDA Multiplier Method	166	(2)
Revenue Multiplier Method	168	(1)
Discounted Cash Flow	169	(2)
Similar Companies	171	(3)
Modeling	174	(2)
Intellectual Property	176	(1)
Securities	177	(2)
Payoff Analysis	179	(4)
Exit Provisions	183	(4)
Other Investment Agreement Issues	187	(10)
The Pitch: Landing the Investor
Introduction	197	(1)
Threshold Conditions	198	(5)
Sales	203	(3)
Time and Confidence Building	206	(1)
Financing Rounds	207	(1)
Pitch Format	208	(2)
The Deal Sheet	210	(5)
Securities Regulaton
Introduction	215	(1)
Security Defined	216	(1)
Why Are There Securities Laws?	216	(1)
Why Bother With Securities Laws?	216	(1)
Overview of the Regulatory Thicket	217	(1)
Exemptions from Federal Securities Law	217	(1)
Public Offerings versus Private Placements	218	(2)
Private Placements, Non-Public Offerings	220	(2)
Regulation D	222	(6)
Documentation for a Private Placement	228	(3)
State Securities Laws	231	(2)
Overview of State Regulation	233	(3)
Selecting a Lawyer	236	(5)
Public Offerings
Introduction	241	(1)
The Decision to Go Public	242	(3)
Investment Banks	245	(2)
Pricing Securities	247	(4)
Mechanics of an Initial Public Offering	251	(3)
Market Makers	254	(1)
IPO Road Show	254	(1)
Investment Bank Fees	255	(2)
Underwriter's Duty	257	(1)
Lock-ups: Getting Rich Slowly	258	(1)
Requirements to be Listed on Major Stock Exchanges	259	(3)
Going Private	262	(5)
Small Public Offerings
Introduction	267	(1)
Regulation of Small Public Offerings	267	(4)
State Regulation	271	(3)
Means of Stock Distribution	274	(13)
Small Business Investment Companies
Introduction	287	(1)
Characteristics of SBIC Investments	288	(4)
Eligibility for SBIC Funding	292	(1)
Restrictions on SBIC Operations	293	(1)
How SBICs Raise Capital and Are Structured	293	(3)
Finding an SBIC	296	(2)
What Will an SBIC Need to Know?	298	(7)
Internal Sources of Cash
Introduction	305	(1)
How Much Capital Is Appropriate?	306	(2)
The Cash Cycle	308	(1)
Accounts Receivable	308	(5)
Inventory	313	(3)
Plant, Property and Equipment	316	(1)
Accounts Payable	317	(4)
Bonds
Introduction	321	(1)
General Characteristics of Bonds	322	(1)
Risk Minimization	322	(3)
Bond Structure	325	(6)
Federal Regulation of Bond Sales	331	(2)
Risk Management Strategies	333	(3)
Early Bond Redemption	336	(1)
Sinking Fund	337	(1)
Junk Bonds	338	(2)
Bond Sales in Secondary Markets	340	(5)
Commercial Paper
Introduction	345	(1)
Securities Regulation and the Definition of Commercial Paper	346	(1)
Who Can Issue Commercial Paper?	346	(1)
Cost of Commercial Paper	347	(2)
Managing Short Term Financial Risk	349	(1)
Managing a Commercial Paper Operation	349	(1)
Maturity Strategies	350	(3)
Other Financing Vehicles
Introduction	353	(1)
Syndicated Loans	353	(1)
Bridge Loans	354	(1)
Mezzanine Financing	355	(1)
Securitization	355	(2)
Private Investment in Public Entities (PIPES)	357	(2)
Bankruptcy and Super Priority Loans	359	(2)
Government Grants and Loans	361	(4)
Appendix A Future Value Interest Factor	365	(1)
Appendix B Future Value Interest Factor for an Annuity	366	(1)
Appendix C Present Value Interest Factor	367	(1)
Appendix D Present Value Interest Factor for an Annuity	368	(1)
Appendix E CD Table of Contents	369	(2)
Index	371