Raising Private Equity The Cf Os Perspective

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A Brief Overview of Raising Capital from a CFO\'s Perspective

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Raising Private Equity The Cf Os Perspective

  1. 1. Private Equity The CFO’s Perspective
  2. 2. <ul><li>What is the Most Important Factor in Raising Private Equity? </li></ul>
  3. 3. <ul><li>MARKETING… </li></ul><ul><li>MARKETING… </li></ul><ul><li>MARKETING… </li></ul>
  4. 4. Product Your Company Four P’s of Marketing Placement Investment Banker Promotion The Road Show Successful Capital Raise Price Valuation
  5. 5. AGENDA Private Equity Firm Process & Methods Internal Process Lessons Learned 1 2 3
  6. 6. Angels Private Equity Firms Institutional Investors Strategic Partner Friends & Family SBIC’s Title Sources of Capital
  7. 7.   Institutional Investors  Buy Out   Expansion    Early Stage    Seed Strategic Partner Private Equity Firms SBIC’s Angels Friends & Family Development Stage
  8. 8. Right Private Equity Investor Industry Location $ Amount Stage
  9. 9. Methods for Finding Private Equity Networking Investment Banker Internet <ul><li>Family & Friends </li></ul><ul><li>Angels </li></ul><ul><li>SBIC’s </li></ul><ul><li>Strategic Partners </li></ul><ul><li>PE Firms </li></ul><ul><li>SBIC’s </li></ul><ul><li>PE Firms </li></ul><ul><li>Institutional </li></ul><ul><li>Strategic Partners </li></ul><ul><li>Angels </li></ul>
  10. 10. Advantages of Private Equity Investor <ul><li>Bring expertise in a variety of disciplines </li></ul><ul><li>Guide/focus company on executing business plan </li></ul><ul><li>Extensive business & financial networks </li></ul><ul><li>Identify acquisition targets </li></ul><ul><li>Day-to-day managerial assistance (angels) </li></ul>
  11. 11. Private Equity Firm Process <ul><li>Evaluate business plan </li></ul><ul><li>Initial negotiations (valuation, deal terms) </li></ul><ul><li>Due diligence </li></ul><ul><li>Negotiation & execution of transaction documents </li></ul><ul><li>Monitor Investment </li></ul><ul><li>Exit </li></ul>
  12. 12. 2 Internal Process What’s The First Step? Internal Process
  13. 13. Develop Solid Business Plan <ul><ul><li>Market </li></ul></ul><ul><ul><ul><li>Large & growing </li></ul></ul></ul><ul><ul><ul><li>Market leader potential </li></ul></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><ul><li>Differentiators </li></ul></ul></ul><ul><ul><ul><li>Sustainable advantage </li></ul></ul></ul><ul><ul><li>Products & Services </li></ul></ul><ul><ul><ul><li>Uniquely meets a significant need in marketplace </li></ul></ul></ul><ul><ul><li>Management Team </li></ul></ul><ul><ul><li>Valuation Scenarios </li></ul></ul><ul><ul><ul><li>Current </li></ul></ul></ul><ul><ul><ul><li>At exit </li></ul></ul></ul><ul><ul><li>Exit Strategy </li></ul></ul><ul><ul><ul><li>IPO </li></ul></ul></ul><ul><ul><ul><li>Buyout </li></ul></ul></ul><ul><ul><ul><li>Recapitalization </li></ul></ul></ul><ul><ul><li>Financials </li></ul></ul><ul><ul><ul><li>Historical </li></ul></ul></ul><ul><ul><ul><li>Projected </li></ul></ul></ul>
  14. 14. Develop Solid Financial Model <ul><ul><li>KISS approach (keep it simple & straightforward) </li></ul></ul><ul><ul><li>GAAP balance sheet, income statement, cash flow </li></ul></ul><ul><ul><li>By month for first 2 years + addn’l 3 years </li></ul></ul><ul><ul><li>Key assumptions (scenario analysis) </li></ul></ul><ul><ul><li>Best, worst, probable cases </li></ul></ul><ul><ul><li>Don’t “hard code” anything </li></ul></ul><ul><ul><li>In one file – no linking to other models </li></ul></ul>
  15. 15. Develop Solid Financial Model <ul><ul><li>What are investors looking for? </li></ul></ul><ul><ul><ul><li>Key market, operational & financial drivers </li></ul></ul></ul><ul><ul><ul><li>Break even analysis </li></ul></ul></ul><ul><ul><ul><li>Cash flow </li></ul></ul></ul><ul><ul><ul><ul><li>When positive? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Potential additional financing rounds </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Capital alternatives (mezz debt, LOC, etc.) </li></ul></ul></ul></ul><ul><ul><ul><li>Economies of scale </li></ul></ul></ul><ul><ul><ul><li>Profit margins </li></ul></ul></ul><ul><ul><ul><li>IRR </li></ul></ul></ul>
  16. 16. Define Your Capital Needs Sources of Capital Company Strategy Type/Timing Financial Strategy Capital Structure
  17. 17. <ul><li>External </li></ul><ul><li>Investment Banker </li></ul><ul><li>PE/SEC Lawyer </li></ul><ul><li>CPA Firm </li></ul><ul><li>Appraiser </li></ul><ul><li>Key Consultants </li></ul><ul><li>Internal </li></ul><ul><li>CEO </li></ul><ul><li>CFO </li></ul><ul><li>COO </li></ul><ul><li>CMO </li></ul>Assemble Your Team
  18. 18. Assemble Historical Financial Information <ul><ul><li>2-3 years financial statements (if not a start-up) </li></ul></ul><ul><ul><li>GAAP compliant financial statements </li></ul></ul><ul><ul><li>Reviewed financial statements (audited is better) </li></ul></ul><ul><ul><li>Historical management reporting </li></ul></ul><ul><ul><ul><li>Plan vs. actual analysis </li></ul></ul></ul><ul><ul><ul><li>Trend analysis (sales, GP margin, KPI, etc.) </li></ul></ul></ul><ul><ul><ul><li>Sales pipeline </li></ul></ul></ul>
  19. 19. Sales Compile Due Diligence Documents Operating Legal Financial HR
  20. 20. Develop Deal Book & Presentation <ul><ul><li>Typically done by investment banker </li></ul></ul><ul><ul><li>Deal book can be large & detailed </li></ul></ul><ul><ul><ul><li>Includes everything (summary, business plan, etc.) </li></ul></ul></ul><ul><ul><ul><li>Substantial input from management team </li></ul></ul></ul><ul><ul><li>Presentation must “sell” the company </li></ul></ul><ul><ul><ul><li>Use a communications consultant </li></ul></ul></ul><ul><ul><ul><li>Create superior transition between team members </li></ul></ul></ul><ul><ul><ul><li>20 minutes maximum </li></ul></ul></ul><ul><ul><ul><li>Rehearse, rehearse, rehearse </li></ul></ul></ul>
  21. 21. <ul><ul><li>Distribute investment information </li></ul></ul><ul><ul><ul><li>Internally review list of potential investors </li></ul></ul></ul><ul><ul><ul><li>Investment banker sends executive summary to get initial “read” </li></ul></ul></ul><ul><ul><ul><li>Monitor investor list & status team </li></ul></ul></ul><ul><ul><li>Conference/meetings set up by investment banker </li></ul></ul><ul><ul><li>Anticipate likely questions </li></ul></ul><ul><ul><li>Create list of questions & concerns raised to address in future conferences/meetings </li></ul></ul>Time to Hit the Road (Show)
  22. 22. Time Is Money <ul><li>Time to complete varies </li></ul><ul><li>Depends upon </li></ul><ul><ul><li>Funds required </li></ul></ul><ul><ul><li>Investor type (angel, SBIC) </li></ul></ul><ul><ul><li>Quality of materials </li></ul></ul><ul><ul><li>Business model </li></ul></ul><ul><li>Oftentimes 6+ months </li></ul>
  23. 23. Control Investment Type Value of Company Negotiation-An Iterative Process
  24. 24. <ul><ul><li>Due diligence </li></ul></ul><ul><ul><ul><li>Less strenuous if you prepared beforehand </li></ul></ul></ul><ul><ul><ul><li>Have team ready for questions </li></ul></ul></ul><ul><ul><li>Final negotiations </li></ul></ul><ul><ul><li>Create transaction documents </li></ul></ul><ul><ul><li>Close transaction </li></ul></ul><ul><ul><li>Celebrate! </li></ul></ul>Final Steps
  25. 25. <ul><ul><li>Prepare, Prepare, Prepare - you only get one shot </li></ul></ul><ul><ul><li>Pick the right investment banker (industry, contacts, etc.) </li></ul></ul><ul><ul><li>Ensure a good “fit” with investor group </li></ul></ul><ul><ul><li>Internally agree on your boundaries prior to raise </li></ul></ul><ul><ul><ul><li>Valuation </li></ul></ul></ul><ul><ul><ul><li>Control </li></ul></ul></ul><ul><ul><li>Create internal communication strategy for employees </li></ul></ul><ul><ul><li>Make plan to handle workload (funding/existing duties) </li></ul></ul>3 Lessons Learned
  26. 26. Thank You! Raymond B. Gallegos Cell: 303.929.1600 Information Resources: Privateequity.com, Privateequityinfo.com, Regdresources.com, NVST.com, GobigNetwork.com, nasbic.org (National Association of Small Business Investment Companies), naicvc.com (National Association of Investment Companies), perfectbusiness.com, vcfv.com, raisecapital.com, mycapital.com Copyright Raymond B. Gallegos 2008 – All Rights Reserved

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