By Brian Boorstein
In July 2007, Granite Creek Partners, LLC outlined some of the steps that can be taken to position your company to raise private equity capital as well as some of the issues that should be considered before starting to fundraise. This month, the private investment firm discusses considerations that business leaders should address before opening their doors to investors-to-be, including suggestions to anticipate and ways to alleviate employee concerns.
Businesses do not produce results in a vacuum; management creates profits and cash flow. The depth and make-up of the management team is one of the most important elements of an outside investor’s assessment of the risk and return of the investment.
Institutional investors would prefer to invest in companies that have full management teams rather than those that are comprised of one or two senior executives. Companies that have incorporated executives to oversee specific areas like sales, finance, operations and human resources will present a better and safer front to prospective investors. With a wider management team, the investors will feel comfortable that the business is not contingent on the decisions, ability and mortality of a few key employees.
Speaking of employees, strong management teams realize that maintaining a working environment in which they are informed and engaged helps in many ways. When it comes to the prospect of investors, lenders or other outsiders touring the facility, engaged employees will not only stay productive, having been informed of their visit and what it means ahead of time, they will help to present the company in the best light.
As was pointed out in Part 1 of this article, the best opportunity to be successful and maximize your position in a fundraising process is for the operations to be performing at their optimal levels. Nonetheless, there are some other small but important refinements that will improve the countenance of the business.
First, a good espirit de corps amongst the workforce is patently evident when outsiders are visiting your company. Therefore, the manner in which the owner or senior executives approach and speak to everyone in the company is a reflection on the company’s ethos. It is also wise to clean up the factory and offices. It is easy to signal that if you care enough about the small details, the large issues are also being addressed.
Having a good workplace really pays off when it comes to avoiding exogenous catastrophes such as an environmental problem, an OSHA violation or an EEOC claim. Suitably engaged employees, especially your facilities or HR staff members, will be watchful at all times. This will be especially helpful during the fundraising process.
Another exercise that you should undertake before introducing your business to outsiders is to get familiar with your competitive landscape. Investors expect you to know your competition, so you should proactively set out to catalog them and assess their strengths and weaknesses. You should be able to discuss why your customers use you or your products and why they do not. The ability to present a detailed expose on the competition will help explain the dynamics of your industry as well as the subtleties of your own business.
Given the importance of and costs associated with the fundraising process, you should put your best foot forward when you attempt to access outside capital. To ensure the optimal presentation of your company, you may want to get the benefit of counsel from an expert. You can solicit input from a trusted advisor, who will ask you tough, probing questions and give you straight feedback.
You may also consider hiring an intermediary to assist you in raising the capital. Investment bankers, brokers and other capital arrangers can provide you with valuation metrics, help you write an informational memorandum, access capital sources and run an auction process. In general, they can expand your reach and serve as a good negotiating buffer between you and your future capital partner.
Moreover, an intermediary or trusted advisor can serve as a sounding board for you beyond the financial terms and conditions. They can help you to assess whether the source of the capital and its goals are in line with your company’s culture, business practices, growth objectives and employment perspectives.
Despite the popular press insinuation that there is an abundance of capital chasing too few deals, it is still difficult to access capital. Nonetheless, at some point over the life of your business you will undoubtedly be faced with that proposition, so it is best to be prepared in advance to move on that activity when the time is right or the situation demands it.
In both parts of this article, we have attempted to outline some, but certainly not all, measures and procedures that you could pursue to increase the likelihood of a successful fundraising venture. In our next article, we will address what type of money – equity, senior debt or mezzanine – you should consider raising for your business.