Once you’ve been in the business a while, patterns start to emerge in deal structure. And, while no two deals are the same, there are many deals that fit into similar transaction buckets, depending on the business stage and desired outcome. Similarly, different types of investment bankers often play in the different stages of the business lifecycle.
Investment bankers are used by at least some companies at each stage of the business lifecycle: startup, growth, maturation & exit. Here’s a quick and dirty outline of the types of capital transactions you might see, based on the stage:
1. Startup: debt and equity capital raise, including convertible debt. Venture capitalists and angel investors under Reg D private placements are often found here. Invoice factoring, credit cards and high-risk personal credit occurs here, including HELOCs and other toxic sources of capital.
2. Growth: debt and equity capital infusions. Venture capital investors turn into private equity and even some PE/VC hybrids that wish to do minority/majority equity buy-ins. Venture debt is also used in this stage, particularly for those with faster growth prospects. In the growth phase, growing companies will look to grow inorganically through acquisition, often sourcing mezzanine and other debt acquisition financing options. This is also where buy-side representation for both sourcing and integration/transaction management are also critical to ensure the business keeps growing and avoids true “decline.”
3. Maturation: debt and equity capital infusions. In the maturation phase, business owners will often use debt to perform minority/majority recapitalization schemes, including dividend recaps.
4. Exit. There are multiple paths to exit, including acquisition, ESOP and even IPO. We have heavily outlined the risks of not using an investment banker in these various transaction types.
Some businesses seek and receive startup funding. Some don’t. Some companies successfully bootstrap their way to profitability and scaled growth. Others grow to the point that capital is required for crossing the chasm, while some are comfortable never crossing it, content to stay on the smaller side of a lifestyle business.
Yes, company owners can certainly do many of the tasks an investment banker would provide in-house or “on their own.” While this is possible, the likelihood of a member of the internal company team holding the chops to truly run an efficient investment banking transaction process internally (complete with access to the right investors and buyers) is slim at best. Worse still, if such a maverick owner goes it alone, but does not structure an issue appropriately, they may risk violating securities laws in their efforts. While a good attorney can help navigate the waters there, attorneys do not create options by marketing a deal to a broader market. Most are not legally licensed to do so.
Just like every successful business needs a CPA and attorney, every great business needs an investment banker. It is true, investment bankers are used less frequently than the CPA and the attorney, but when they are needed, the need is typically mission-critical and time-sensitive. So, the next time you’re thinking about any of the following, find an trusted advising investment banker:
· Equity or debt capital infusion
· Mezzanine capital funding
· Recapitalization or restructuring assistance
· Minority/majority buy-in
· Acquisitions loans and acquisition financing
· Buy-side mergers and acquisitions
· Sell-side mergers and acquisitions
· Initial public offerings, direct public offerings, including Reg A+
I frankly am ambivalent if you do not hire any member of the InvestmentBank.com team. In fact, there are only so many deals a single investment banker can facilitate at any given time and we always say “no” more than we say “yes.” But, if you’re looking to get the best rate on capital, a business owner can typically create such options as you look to transact in the capital markets.
This week's blog came from our friends at investmentbank.com. Their team works with CTX Capital on occasion to provide services to our clients and theirs.