There is much to be said about a start-up chasing a ‘boot-strapping’ strategy to venture financing, however, the key word here is  ‘chasing’ because that is the only thing the CEO will end up doing 80% of his or her time. The above may be a good strategy for start-ups operating in a garage, but not for emerging and growing companies. It should really be renamed to “cap in hand” financing, and it places the company at a disadvantage at the negotiating table, more often than not, CEOs are not able to walk away from a funding deal.

There are better and more elegant ways to raise funds, and here we only discuss the main avenues. If you think your  public company may benefit from a private placement or contingent equity facility, please submit an online confidential inquiry.

IPO

Initial Public Offerings raises capital on the stock market through underwritten sales of shares. Subject to the whims of the market, bulls and bears come to play and factors such as timing, cost, effort and ongoing requirements and obligations all have a bearing on your decision to seek an IPO.

Whilst an IPO is often seen as an exit for early investors, it is really the beginning as far as the company is concerned. An IPO is not just about funding, but it is just as much part of a marketing strategy.

An IPO is never worthwhile though, for young emerging companies seeking a first round of less than $5 million. When one takes into account the costs in the preparation, consultant fees, broker fees and time away from active business development, there would not be an adequate kitty of cash left over.

An IPO is best suited to a more developed or mature company, with good EBIT figures, which make the basis for a P/E valuation of the shares. A higher valuation, as we all knows, means less dilution for the owners and current shareholders.

Private Placement

An attractive source of funds is through a private placement, unlike an IPO, companies do not have to effectively ‘go public’ in an effort to raise funds.  A private placement may be possible also where there is good synergy or understanding between the investors and the company.

Often a private placement begins with friends and family networks or angel investor networks and groups. However more structured markets such, as the Frankfurt OPEN market is the ideal platform to gain access to private placement investors.

PIPES

Private Investments into Public Equities, as the name implies is a source of funding available to publicly listed companies. This investment vehicle works the same way as a private placement.  Here the company may be dealing with a syndicate of investors or a single investor (usually a fund). Amount of funding under this scheme can range from $1million to hundreds of millions.

A PIPE is effectively a binding agreement for the investor to purchase shares in your company on an ongoing basis.

There are pros and cons with this type of approach to investment, on the positive, it saves time and money, however, on the downside, if an agreement is not properly structured, it could be disastrous for a company. The devil is in the detail however, and a properly structured PIPE can be a good source to funds for growing companies.

Contingency Capital