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The Corporate Insider's Handbook: Part 1
The decision to incorporate is a big one for most small businesses. Incorporating has a vast array of benefits for businesses, and it opens up many options for managing the growth of the business and its overall management. This white paper package covers the following topics of concern to corporations experiencing certain challenges of rapid growth, as well as those looking to grow further.
This outstanding value includes the following must-have's:
Download the Package "The Corporate Insider's Handbook: Part 1" for just $137.00.
Download the Package "The Corporate Insider's Handbook: Part 1" for just $137.00.
Acquisition Financing
Selecting the sources of debt and equity financing for a potential acquisition is a critical step. Three primary issues to address when structuring an acquisition are: (1) The amount of debt that should be raised; (2) Creating a capital structure that is appropriate for the combined company's future; (3) The cost of funds. In addition to these three deal breaking issues, this white paper also addressed assembling a team that cannot only close the deal but also facilitate the financing and an overview of a successful workplan. If you ever wanted a play-by-play look under the hood of how to conduct successful merger, acquisition or divestiture, THIS is your invitation!
If a business is trying to grow through acquisitions, there are many options of financing that will allow the acquisition or merger with another business.
Asset Based Lending:
Asset based lending plays an important part in financing acquisitions. Clients are provided with cash by lending on collateral (fixed assets, accounts receivable and inventory) and engage in factoring, purchase order financing, real estate financing and leasing.1 Asset based lending can establish a line of credit as high as 80%, based on eligible collateral. There are many types of asset based lending. Some of these are discussed below.Secured Lending: In secured lending, the lender provides funds secured by the borrower’s assets. The collateral can be any asset of value that can be determined such as accounts receivable, real estate, patents, or trademarks. The secured lender can also create a revolving line of credit where the borrower’s collateral is translated into operating cash or working capital Factoring: Factoring is a type of asset based lending in which the financial institution purchases accounts receivable from the lending company. In factoring the lending institution takes on credit risk and collects receivables directly from the business’s customers.
Cash Flow Lending:
Cash flow lending is an option for firms with predicable and historically sustainable cash flows to obtain financing for acquisitions.2 The lending institution will develop a loan structure that can be serviced with these operating cash flows. The more stable a firm’s cash flows the further the term of the loan can be extended.
Cash flow lending can be important for a business during a time for expansion, growth, supplies, or payroll. Cash flow lending is a possibility for any business with a privately held income stream of future payments.4 Cash flow lending has many benefits to lending from a bank similar to asset based lending. For example, a business can receive immediate cash flows while keeping their bank line of credit current and available for emergency situations.
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Capitalization Process and Model
The purpose of this 6-page memorandum is to help officers, directors, and other managers interested parties to comprehend a novel capital structure model that has had a modicum of success in the market and explore its possible relevance to various corporate situations. It is a must read for any company considering raising capital and creating value for investors.
Daily news articles report that it is becoming increasingly difficult for early stage companies to raise capital. Capital market conditions indicate that this status may continue. Overcoming this condition may require that early stage companies execute a new approach by designing their business plan so it can succeed through raising small rounds of capital in planned follow-on offerings.
This memorandum introduces concepts for a planned evolution and capitalization process that can be used by some development-stage companies. It presents an overview of Pipeline Data, a company that has executed this capitalization process and model. To the extent Pipeline’s market cap value holds or increases, this is a model and process that other development-stage companies can follow to achieve capitalization in a context that anticipates increasing the market cap value of the company for each new round of investors.
The Process
- The process described herein assumes that a development-stage company can be transformed into a viable business through its team’s ongoing effort to master capitalization as their first strategic objective and capability.
- This process envisions harmonizing a continuous capital-raising effort that begins by funding the company with a small initial round of founders capital, to raising a small private round to raising a larger interim round (PP, 504, Reg.S or bridge loan) to preparing, filing and funding a small SB-2 offering and making the company a publicly traded entity by listing it on NASDAQ’s tier three market, the OTC Bulletin Board.
- This process assumes that the company’s business plan can be designed to focus its team’s effort on first developing its capital structure and capitalization capability and then expending resources to develop technology and/or scale up business operations when available capital and executable opportunity can be transformed into adding value to the company.
- This process assumes that a company’s business plan, its offering documents and long-term development plan shall be created in accordance with a model that is designed to capitalize and develop an early-stage company by activating capital market practices first and company operations second, and only after a sustaining capital structure has been developed and funded and the team has mastered capitalization and instilled it as a core foundation on which the company’s business model can be developed.
- This process assumes that the objective is to conceive business and technology development plans and offering documents in a context that articulates that the vision for the project is developing an early-stage company that will create value each time one of its milestones is achieved. Identifying and achieving value-added milestones and continuing to sell the vision of how those achieved milestones are creating value is a fundamental requirement to make this model work.
- This process assumes that the mission is to apply capital market practices to develop a valuable early-stage company. It encompasses...
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Current Trends in Financings and Transactions
This 8 page tome is the only industry publication that incorporates both the track record and future outlook on private equity funding and M&A deals. The paper gives you in-depth analysis and insight into the impact that trends may have on companies seeking investors, deals at all stages, deal conditions, proceeds and pricing. The report goes beyond the press releases, further than the stories behind the headlines; it follows the trajectory of the market. As Wayne Gretzchy would say, this report goes "not where the puck is but where the puck is going". This paper offers information on deal trends at the early stage of funding, commentary on important trends in private equity, tables of venture IPOs and M&As, strategy and market insight on venture fund activity.
IPO and VC Market Review
The drop-off in the IPO market continued in 2002, leaving the IPO market all but dead and the plunge has continued into this year. Quarter one of 2003 was even worse with only 3 IPOs compared to 26 IPOs in Q4 2002. Economic uncertainty has put the IPO market on hold, producing a much different investment arena than seen in the late 1990s.
Not many companies are experiencing the lucrative IPO exit strategy VC firms need to placate their limited partners.
Result: It is increasingly harder to achieve ROI requirements of institutional funders.
The number of M&A deals continued a downward trend in the first quarter of 2003. After a crazy couple of years of "have business plan on napkin, will fund," the private investing community has regained its composure. Now VCs are investing larger amounts in fewer companies, spending more time working hands-on with their portfolio companies, and proportionately turning more towards the M&A market for exit opportunities. It may be a long time before any year can compare to the investing frenzy of the end of millennium. Below is a summary of VC activity by sector in 1Q03.
[Chart shown in purchased version]
In a sign of the poor investing times, more than 60% of 200 venture capitalists doubt funding levels will increase before early 2004, and only a handful expect their companies to go through an IPO. That echoes recent figures. Last year, venture investments remained anemic. Venture capital investments in Q1 2003 were the lowest dollar value they’ve been since 1997. The number of companies receiving funding was the lowest since 1996. Only 1% of VCs believe they will cash out of a company via an IPO. The vast majority, 95 percent, indicate their most likely path for exiting an investment in a company was through a merger or acquisition. This notion is supported by the fact that, reflecting the continued lethargic IPO market, only one U.S. venture-backed company raised $77.2 million during the first quarter of 2003 via an IPO.
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Employee Benefits - Stock Options & Incentive Plans
Equity compensa-tion (e.g., stock options) allows companies to leverage powerful financial incentives to motivate their rank and file, attract new blood and create confluence of abjective among managers and workers, all this without using cash. In this 6 page white paper, you'll get exposed to the key concepts driving decisions about why use options, what kinds of options might be a best fit for your company, and pitfalls/potholes to watch out far. Before venturing into the murky waters fraught with Alternative Minimum Tax concerns and options expensing woes, buoy your company with this strudy anchor! Don't be caught adrift on the sea of the uninformed!!
EQUITY COMPENSATION
Because developmental stage companies need to conserve cash to fuel their growth, they tend to avoid compensation programs that involve significant cash payments. Equity compensation (e.g., stock options) allows a start-up business to offer employees powerful financial incentives without using cash. In addition, the company may transfer substantial economic benefits to employees, using stock or stock options, with a minimal impact on the company’s earnings.
From the employee’s perspective, stock options offer an opportunity to participate in the company’s success (i.e., through appreciation in the value of the underlying option shares) without risk of capital loss. Stock purchase and stock option programs can also be structured to defer an employee’s recognition of income and allow taxation at capital gain rates. Stock option arrangements thus represent key ingredients of the compensation strategies of start-up companies.
Stock Options
Stock options are the most common type of equity compensation. Stock options are contracts that allow the holder (the “optionee”) to purchase a certain amount of stock at a specified price within a set time period. Even if the market value of the stock rises, the optionee may purchase the stock at the lower price set by the option contract.
There are essentially two types of compensatory stock options — qualified and nonqualified. Qualified stock options include incentive stock options which are tax-favored options created under Internal Revenue Code (“IRC”) §422. Nonqualified stock options are stock options other than qualified options.
A. Incentive Stock Options (ISOs)
Incentive stock options (ISOs) are stock options that meet the requirements of IRC §422. An ISO allows an employee to purchase stock at a discount without paying tax until the stock is sold, at which time any gain will be taxed at favorable long-term capital gain rates (assuming the stock is held for at least 12 months).
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Metrics: Non-numerical Critical Success Factors in Pre-public Companies
When taking a private company to the public, it’s often not what management says about the numbers but what the numbers scream about management that most effects the company’s reception in the marketplace. This epistle delves deep into the cavernous veins of non-numerical, qualitative factors that act as levers of value that often only show up ex post facto on the financials. How and why a pre-valuation and third party corporate finance analysis from OTHER than the underwriter’s syndicate (i.e. anyone involved in distribution) if often a must to extricate value. Whether a financial guru or a non-financial manager, this is essential substance presented in easily digestible format.
Preparing initial public offering (IPO) is like training for a marathon – it takes lots of time and tons of discipline combined with exacting performance. It’s surely one of the most complex and somewhat daunting processes a management team can face in today’s market. In order to enhance your company’s chances at success, we’ve created this look at the chief critical success factors (CFS) of companies that have completed successful offerings in the past. Increase your company’s probability of victory by taking into account two of the basics of non-numerical IPO management:- CSF #1 — Act like a public company before becoming one
- CSF #2 -- Implement initiatives early
The going public event is a crucial milestone in the life of any company. Managing the process and all the attendant legal and reporting tasks -- requires careful planning and flawless execution. The choice of transaction teams and business advisors, and decisions about pricing, research, and distribution can all have significant ramifications for success in both the short- and the long-term.
It’s worth noting that the OTCBB companies who successfully transition to public life rely more heavily on the objectivity of their business advisors, attorney and accountant than did other less impactful management teams during the 12 months prior to and the 12 months post public introduction. One reason: the high level of objectivity all of their advisors -- business advisor, accounting teams and legal counsel -- showed compared with that of the unsuccessful performances influences performance of their client companies.
In this white paper we’ll overview several of the components of these CFS and we encourage you to get a handle on them now and implement long before you navigate the public capital markets swift moving current.
Acting Like a Pubco
Most executives after they are public in retrospect view themselves as ill prepared for the going public process. Preparing for going public is a daunting task but one which if ignored can rise up to bite a company and affect performance, which ultimately will detract from market valuation.
As a measure of preparedness, operating, strategic, and financial improvements companies undertook in advance of the going public process are considered monumental to after market performance. Nearly all companies that perform positively in the first few quarters of being a public company undergo changes to the company’s policies, processes, and systems prior to accessing the market. Common changes include revising the financial accounting and reporting systems, executive compensation systems (see below), and board structures. Not surprisingly, investor relations programs receive a makeover with a dedication of a substantially higher proportion of capital to the effort.
Interestingly, many executives do a far better job planning for their company’s future than for their own. Many executives never institute a personal wealth management strategy -- missing the opportunity to capitalize fully on the value they have built.
The single greatest improvement believed to have the greatest impact on the company’s subsequent performance than any other policies and practices is in employee incentive programs (see below). Other initiatives that rank high in terms of their impact on long-term performance include marketing and performance measurements. Especially significant, are changes and improvements to the following systems: strategic planning, internal controls, financial accounting and reporting, executive compensation, employee incentives, and investor relation policies.
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Pitching a VC
This white paper will lay the foundation for entrepreneurs and small and medium companies with to directly access sources of early and later stage - local, national, global, and regional - capital ranging from angel, venture, corporate, bank, and structured business acceleration programs. In this white paper, you’ll learn steps 1 – 6 of how to strategically comjmunicate to this specialized audience including how to address risk in such a way to increase the probability of getting funded, how not to get burned by getting a handle on your burn rate, and how to add power to your power point presentation, and how to manage the slippery slope of statistics. Before you try to rasie money with any institutional investor, be sure your prepared! Read this!!
How to Pitch A Home Run to VC
Meeting with venture capitalists for your initial round of offering is a little like going to bat for the first time in major-league baseball. You have an opportunity to hit the ball out of the park, but if you blow it, you may find yourself languishing in the minor leagues of entrepreneurship. This white paper is designed to increase your batting average.
Over the years, our team has observed thousands of companies in their efforts to access institutional capital via Venture Capital1. Some have succeeded. Many more have failed. In fact, for every business owner who tries to get funds, there are at least 100 who don’t make the cut. Think of the pitch as a sales call with the toughest of audiences. Venture capitalists weed through perhaps 100 business plans a week, sit through maybe 100 presentations a year, and eventually invest in 5 -10 companies. Their goal in meetings is to eliminate the 90% that aren’t for them. What distinguishes the winners isn’t always the fact that their companies are more promising. Their secret is that they know how to sell themselves.
The old adage about presentations is that they’re never finished; entrepreneurs simply run out of time. Nothing could be truer. The amount of time spent dithering over slide presentations is almost incalculable and rarely productive. The reality of raising money is that the slides don’t sell the deal. The persuasive and compelling manner in which the presentation is made sells the deal. To make this digestible and understandable, we will use a Vogue-esque technique to keep you from making a VC Fashion foible: Presentation Do’s and Don’ts only we won’t show before and after photos.
Do … Know thyself and to thy own self be true. (to borrow from Shakespeare)
Knowing areas of your company that need improvement and what you’re team is capable of doing, generates credibility. We’re human. We are limited. Confessing this conveys that you’re someone a VC funder can work with, that you’re willing to take direction. As Location, Location, Location is the mantra in Real Estate, a company’s people are the first, second, and third most important thing. Prior experience in starting and growing companies, in particular, is highly valued. So is familiarity with the market. Making mistakes is inevitable, but having made them in the past and at someone else’s expense is preferable.
You need to demonstrate that you’ve surrounded yourself with people who are smarter, stronger, and more skillful than you are. Under-hiring – where the new people recruited are less qualified than those who hire them – is a great danger and can be a deal killer. And, your team needs to demonstrate that they are truly hungry. If you’ve got your day job and you’re doing this on the side, generally VCs don’t want to talk with you.
Don’t …Shoot for Papa Bear or Mama Bear status; aim to be the Baby Bear.
Remember the fairy tale? Papa Bear’s stuff was always too big, too hard, too hot. Mama Bear’s was too small, too soft, too cold. Baby Bear’s was always just right. Same principle. Don’t say too much or too little. Unfortunately, either extreme can kill a deal. If you bore your investors to tears, your presentation is far too long and indicates to the savvy investor that you are unsophisticated when it comes to the rules of engagement. It also tells your audience you have doubts as to what information is critical and what is simply fluff. On the other hand, you’ll give investors the impression that you’re unwilling to share important information if your presentation doesn’t go on long enough, far enough or deep enough.
Ideally, the standard pitch to professional investors is...
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Want to know more?
Download the Package "The Corporate Insider's Handbook: Part 1" for just $137.00.
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Acquisition Financing
