It may be an understatement to say that the end of 2022 was one of the worst years for Capital Seekers in twenty years. Bloomberg reports that “Venture Capital Deals Set for Worst Drop in 2 Decades”1, Private Equity is experiencing the worst fund-raising market since the Great Financial Crisis in 08-092 and M&A activity has dropped 48% in Q3 2022 from Q3 20213.
In these tough conditions, Capital Seekers, independent of size, sector or geography are affected and the ones that can adjust to current conditions will have strong platforms which will be well poised to take advantage of markets when conditions change.
Five survival tactics to help a Capital Seeker become stronger and better prepared for a rebound in capital market conditions:
- Cash is King: A realistic assessment of funding position and capabilities is essential. If funding will be tight, need to adjust as soon as possible to weather the storm.
- Liability Management Needs Full Attention: In addition to understanding cash requirements, it is important for Capital Seekers to pay close attention to their liability management. If storm clouds seem to be brewing, early and often engagement with liability owners is one of the keys to “working out” problems.
- Capital Sourcing Takes at Least 2x Longer than Expected: There is funding available, but the terms and valuations will be significantly less than one year ago. Unless the Capital Seeker is willing to accept terms that might seem onerous (even offensive), expect negotiations and due diligence to take at least 2x longer than expected.
- Due Diligence Preparation is the Difference Between Capital Markets Success and Failure: If capital requirements are not immediate, then this time can be used to enhance due diligence preparation. When capital becomes available again, robust due diligence preparation will help ensure highest valuations. If capital requirements are immediate, due diligence preparation is essential for closing capital.
- Maintain Contact with Potential Capital Sources – Build Virtual Relationships: Now is the time to remain in contact with potential Capital Sources. It is human nature to want to become less visible when times are tough. But now is the time when a Capital Seeker can distinguish itself with Capital Providers. Excellent investor relations and communications will pay off when capital is requested.
The capital markets will come back. Those companies who lean into current conditions will be those companies with most capital and valuation success when the capital markets rebound.
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.