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The Realities of Raising Capital

These helpful tips can make a difference.

By Tom McDermott On Sep 29, 2016

A veteran CEO who ran early-stage and middle-market companies once confided to me: “Raising capital seems to be my full-time job. I’d love to get back in the business.” I myself have spent the vast majority of my career as an operating executive and, more recently, as an advisor and investment banker, so I can appreciate the various points of view on the best ways to go about raising debt and/or equity. Here are some things to think about before you go about raising your own capital.

  1. Don’t underestimate time requirements. Raising capital in a constantly changing environment is tough enough, even if it’s your full-time job. Trying to do that while running a business can have negative consequences – with either the capital raised or your business results. So, hiring an advisor can be instrumental so that you get involved only in the discussions that truly require your leadership. Let others do your bidding.
  2. Your existing network is not enough. Some CEOs overestimate their contacts – thinking they know enough players when there are many other investors that may be more appropriate. The investment banking landscape is constantly changing, and what worked three or four years ago may not work today.
  3. Don’t limit your options. It can be a mistake for you to get tied to an investor or narrow plan, instead of bringing in an unbiased investment banker (advisor) who can de-personalize decisions and help frame the issues and opportunities. This goes for both the right capital structure as well as the right targets to invest in your business.
  4. Don’t wait to get started. Raising capital requires planning, resource management and a continuous, steady effort. Two of the most critical steps are figuring the right capital structure (and therefore targeting the right investors) and developing a compelling and comprehensive investor package.
  5. Don’t depend on the wrong people. Sometimes your CFO and board members just don’t have enough experience to get the job done. You want experienced advocates who are out in the market talking to investors every day to provide you with the best advice.
  6. Understand your capital structure. Think broadly about how your firm finances its overall operations and growth. It may use different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Debt and equity each have advantages and disadvantages. Learn them well.
  7. Choose the right advisor. You should seek out an advisor or investment banker who will have vast experience and access to investors, relevant to your field or industry sector. Your advisor needs to understand the asset class you desire, measured with your company size and scope. This person needs to be open and forthright in sharing goals and talking through issues.

About the Author: Tom McDermott is a managing director at Cambridge Wilkinson, a firm that provides a full suite of investment banking services.