Given tight capital market conditions, it has become more important than ever for all types of Capital Seekers including Venture Capital Companies, Lower and Middle Companies whether family or institutionally owned and Funds to run a process to help ensure closing success at highest valuations or most capital.
Usually, Capital Seekers use an investment bank or placement agent to run a process since running a process typically means having a broad top of funnel at the beginning of transaction negotiations which helps ensure best terms and outcomes at close. To gain a broad top of funnel, in the past, it has been a manual process of emailing/calling so it has been important to have a team to do this work and investment banks/broker-dealers are the regulated entities that can undertake this activity.
Today, Capital Seekers can leverage Fintech solutions such as the Deer Isle’s Beacon technology to help run a process which can significantly improve efficiency and reduce all-in costs with excellent results.
The 4 basic steps to run a successful process are:
- Institutional Preparation which means having initial as well as due diligence (data room) prepared so when institutional Capital Providers are interested, they can immediately start their internal process.
- Broad Outreach to Total Addressable Capital Market to build robust top of capital funnel. The more interested parties in a transaction, usually, the better the outcomes. Competition and interest in a transaction builds support and success begets success. It can be very enticing to stop “the process” with one interested party. However, the lack of depth of interest means that there is no back up interest if the interested party fails. A failure can mean poor terms for the Capital Seeker and/or extended time periods both of which would lead to less-than-optimal outcomes.
- Understand Market Conditions by interacting with Total Addressable Capital Market early in process. The early interested party may or may not be offering “market terms”. By obtaining feedback from a wide range of possible interested parties, market terms will be better understood.
- Negotiate knowing what terms are important and market. There are usually many paths to a best outcome and understanding the key drivers/objectives of the Capital Seeker and Capital Provider can create bridges to a best outcome where there seem to be roadblocks. However, demanding terms that are off-market will rarely work and will usually lead to lack of success.
Even though, running a process can seem complicated, time consuming and unnecessary when there seems to be an attractive early solution for a capital raise; running a process is almost always the best method for obtaining best outcomes. Experienced Capital Market Participants know that an early solution can be a mirage with unfortunate consequences usually meaning that what seemed like a best outcome becomes more expensive and time consuming than engaging a formal capital process from the beginning.
Deer Isle Group
Founded in 2007, Deer Isle Group empowers Capital Participants with the right tools to ensure transparent, smooth, and efficient direct capital contact. Since our founding, we have successfully transacted over $5 billion in capital, through Deer Isle Capital, LLC (our FINRA registered broker/dealer), for companies and funds in a wide variety of security types, sectors, and geographies.
The foundation of our approach is innovative unbundled capital capabilities, expertise, and guidance that are customizable depending upon Capital Participant’s requirements.
These include Beacon, a proprietary technology that offers Capital Participants “Direct Issuance/Contact” capabilities, as well as capital markets brand building which helps ensure capital markets success today and, in the future, to a curated set of relevant potential Capital Participants from a universe of 10,000+ institutional capital markets organizations/45,000+ institutional capital markets people. In addition, Deer Isle provides “as needed” Strategic Capital ConsultingTM services to prepare for a capital or M&A transaction including Strategic Capital PositioningTM, Strategic Capital ModelingTM and Due Diligence Preparation, as well as Closing Advisory/Guidance expertise, through Deer Isle Capital, for structuring, negotiating, and completing a successful capital/M&A transaction.