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Raising Private Equity The Cf Os Perspective

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rbgallegos

The document discusses the key factors in raising private equity capital. It emphasizes that marketing is the most important factor and outlines the marketing process including developing a solid business plan, financial model, capital needs assessment, and presentation materials. It also describes working with consultants, finding investors through networking, and the iterative negotiation process. The goal is to be well prepared with compelling materials in order to successfully raise funds in one attempt.

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Private Equity The CFO’s Perspective
What is the Most Important Factor in Raising Private Equity?
MARKETING… MARKETING… MARKETING…
Product Your Company Four P’s of Marketing Placement Investment Banker Promotion The Road Show Successful Capital Raise Price Valuation
AGENDA Private Equity Firm Process & Methods Internal Process Lessons Learned 1 2 3
Angels Private Equity Firms Institutional Investors Strategic Partner Friends & Family SBIC’s Title Sources of Capital
  Institutional Investors  Buy Out   Expansion    Early Stage    Seed Strategic Partner Private Equity Firms SBIC’s Angels Friends & Family Development Stage
Right Private Equity Investor Industry Location $ Amount Stage
Methods for Finding Private Equity Networking Investment Banker Internet Family & Friends Angels SBIC’s Strategic Partners PE Firms SBIC’s PE Firms Institutional Strategic Partners Angels
Advantages of Private Equity Investor Bring expertise in a variety of disciplines Guide/focus company on executing business plan Extensive business & financial networks Identify acquisition targets Day-to-day managerial assistance (angels)
Private Equity Firm Process Evaluate business plan Initial negotiations (valuation, deal terms) Due diligence Negotiation & execution of transaction documents Monitor Investment Exit
2 Internal Process What’s The First Step? Internal Process
Develop Solid Business Plan Market Large & growing Market leader potential Competition Differentiators Sustainable advantage Products & Services Uniquely meets a significant need in marketplace Management Team Valuation Scenarios Current At exit Exit Strategy IPO Buyout Recapitalization Financials Historical Projected
Develop Solid Financial Model KISS approach (keep it simple & straightforward) GAAP balance sheet, income statement, cash flow By month for first 2 years + addn’l 3 years Key assumptions (scenario analysis) Best, worst, probable cases Don’t “hard code” anything In one file – no linking to other models
Develop Solid Financial Model What are investors looking for? Key market, operational & financial drivers Break even analysis Cash flow When positive? Potential additional financing rounds Capital alternatives (mezz debt, LOC, etc.) Economies of scale Profit margins IRR
Define Your Capital Needs Sources of Capital Company Strategy Type/Timing Financial Strategy Capital Structure
External Investment Banker PE/SEC Lawyer CPA Firm Appraiser Key Consultants Internal CEO CFO COO CMO Assemble Your Team
Assemble Historical Financial Information 2-3 years financial statements (if not a start-up) GAAP compliant financial statements Reviewed financial statements (audited is better) Historical management reporting Plan vs. actual analysis Trend analysis (sales, GP margin, KPI, etc.) Sales pipeline
Sales Compile Due Diligence Documents Operating Legal Financial HR
Develop Deal Book & Presentation Typically done by investment banker Deal book can be large & detailed Includes everything (summary, business plan, etc.) Substantial input from management team Presentation must “sell” the company Use a communications consultant Create superior transition between team members 20 minutes maximum Rehearse, rehearse, rehearse
Distribute investment information Internally review list of potential investors Investment banker sends executive summary to get initial “read” Monitor investor list & status team Conference/meetings set up by investment banker Anticipate likely questions Create list of questions & concerns raised to address in future conferences/meetings Time to Hit the Road (Show)
Time Is Money Time to complete varies Depends upon Funds required Investor type (angel, SBIC) Quality of materials Business model Oftentimes 6+ months
Control Investment Type Value of Company Negotiation-An Iterative Process
Due diligence Less strenuous if you prepared beforehand Have team ready for questions Final negotiations Create transaction documents Close transaction Celebrate! Final Steps
Prepare, Prepare, Prepare - you only get one shot Pick the right investment banker (industry, contacts, etc.) Ensure a good “fit” with investor group Internally agree on your boundaries prior to raise Valuation Control Create internal communication strategy for employees Make plan to handle workload (funding/existing duties) 3 Lessons Learned
Thank You! Raymond B. Gallegos Cell: 303.929.1600 Information Resources: Privateequity.com, Privateequityinfo.com, Regdresources.com, NVST.com, GobigNetwork.com, nasbic.org (National Association of Small Business Investment Companies), naicvc.com (National Association of Investment Companies), perfectbusiness.com, vcfv.com, raisecapital.com, mycapital.com Copyright Raymond B. Gallegos 2008 – All Rights Reserved

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Raising Private Equity The Cf Os Perspective

  • 1. Private Equity The CFO’s Perspective
  • 2. What is the Most Important Factor in Raising Private Equity?
  • 4. Product Your Company Four P’s of Marketing Placement Investment Banker Promotion The Road Show Successful Capital Raise Price Valuation
  • 5. AGENDA Private Equity Firm Process & Methods Internal Process Lessons Learned 1 2 3
  • 6. Angels Private Equity Firms Institutional Investors Strategic Partner Friends & Family SBIC’s Title Sources of Capital
  • 7.   Institutional Investors  Buy Out   Expansion    Early Stage    Seed Strategic Partner Private Equity Firms SBIC’s Angels Friends & Family Development Stage
  • 8. Right Private Equity Investor Industry Location $ Amount Stage
  • 9. Methods for Finding Private Equity Networking Investment Banker Internet Family & Friends Angels SBIC’s Strategic Partners PE Firms SBIC’s PE Firms Institutional Strategic Partners Angels
  • 10. Advantages of Private Equity Investor Bring expertise in a variety of disciplines Guide/focus company on executing business plan Extensive business & financial networks Identify acquisition targets Day-to-day managerial assistance (angels)
  • 11. Private Equity Firm Process Evaluate business plan Initial negotiations (valuation, deal terms) Due diligence Negotiation & execution of transaction documents Monitor Investment Exit
  • 12. 2 Internal Process What’s The First Step? Internal Process
  • 13. Develop Solid Business Plan Market Large & growing Market leader potential Competition Differentiators Sustainable advantage Products & Services Uniquely meets a significant need in marketplace Management Team Valuation Scenarios Current At exit Exit Strategy IPO Buyout Recapitalization Financials Historical Projected
  • 14. Develop Solid Financial Model KISS approach (keep it simple & straightforward) GAAP balance sheet, income statement, cash flow By month for first 2 years + addn’l 3 years Key assumptions (scenario analysis) Best, worst, probable cases Don’t “hard code” anything In one file – no linking to other models
  • 15. Develop Solid Financial Model What are investors looking for? Key market, operational & financial drivers Break even analysis Cash flow When positive? Potential additional financing rounds Capital alternatives (mezz debt, LOC, etc.) Economies of scale Profit margins IRR
  • 16. Define Your Capital Needs Sources of Capital Company Strategy Type/Timing Financial Strategy Capital Structure
  • 17. External Investment Banker PE/SEC Lawyer CPA Firm Appraiser Key Consultants Internal CEO CFO COO CMO Assemble Your Team
  • 18. Assemble Historical Financial Information 2-3 years financial statements (if not a start-up) GAAP compliant financial statements Reviewed financial statements (audited is better) Historical management reporting Plan vs. actual analysis Trend analysis (sales, GP margin, KPI, etc.) Sales pipeline
  • 19. Sales Compile Due Diligence Documents Operating Legal Financial HR
  • 20. Develop Deal Book & Presentation Typically done by investment banker Deal book can be large & detailed Includes everything (summary, business plan, etc.) Substantial input from management team Presentation must “sell” the company Use a communications consultant Create superior transition between team members 20 minutes maximum Rehearse, rehearse, rehearse
  • 21. Distribute investment information Internally review list of potential investors Investment banker sends executive summary to get initial “read” Monitor investor list & status team Conference/meetings set up by investment banker Anticipate likely questions Create list of questions & concerns raised to address in future conferences/meetings Time to Hit the Road (Show)
  • 22. Time Is Money Time to complete varies Depends upon Funds required Investor type (angel, SBIC) Quality of materials Business model Oftentimes 6+ months
  • 23. Control Investment Type Value of Company Negotiation-An Iterative Process
  • 24. Due diligence Less strenuous if you prepared beforehand Have team ready for questions Final negotiations Create transaction documents Close transaction Celebrate! Final Steps
  • 25. Prepare, Prepare, Prepare - you only get one shot Pick the right investment banker (industry, contacts, etc.) Ensure a good “fit” with investor group Internally agree on your boundaries prior to raise Valuation Control Create internal communication strategy for employees Make plan to handle workload (funding/existing duties) 3 Lessons Learned
  • 26. Thank You! Raymond B. Gallegos Cell: 303.929.1600 Information Resources: Privateequity.com, Privateequityinfo.com, Regdresources.com, NVST.com, GobigNetwork.com, nasbic.org (National Association of Small Business Investment Companies), naicvc.com (National Association of Investment Companies), perfectbusiness.com, vcfv.com, raisecapital.com, mycapital.com Copyright Raymond B. Gallegos 2008 – All Rights Reserved