Why does someone need to raise capital?
Well there are a number of reasons Dave. I guess most obviously their business could just be growing. So as you grow you give credit to your customers, your debtor book rises and sucks cash out of your business and you are in danger of over trading. If the business is growing very fast it is very likely that they will need raise some capital to go along with that. Alternatively they could be looking at growing even faster than that and actually looking to buy another business so make an acquisition. They could be looking to do a management buy out. If the management don’t own the business but they want to do an ownership change they could raise finance to buy the business out. Or an owner could just be wanting to raise capital to release some equity so raise some debt or bring in a new shareholder so they can then pay themselves some money and get some cash out of the business. So those are the most common reasons.
What sources of this type of finance are there?
It really depends on the size of the sort of money that you are looking to raise. If you are looking to raise under a few million pounds then you are really looking at the Venture Capital Trust market, which is an offshoot of the private equity that is regulated by the Government, they get tax breaks. They are basically small venture capital funds that invest in businesses. You might also be looking at Business Angels. And again you also have your High Street Bank then again they are only going to lend to businesses that are very low risk.
£5m and upwards you are getting into the Private Equity arena. Certainly once you get above £10m in terms of fundraising then you are very much into the mainstream private equity market which is very well populated by some excellent funds.
So how would you go about this if you were needing finance?
Well I just think that it is really important to understand it and also to undertstand that certainly in the bigger deals and actually in the smaller deals banks and private equity deals or venture capital trusts, they don’t really want you to walk in off the street and come and tell them about your business. It won’t be presented in a way that they can easily digest. These guys see quite a lot of businesses and they want them to be presented in a certain type of way and they want them to be understood and they want them to be properly advised. So I think that most people who are wanting to raise several million pounds and upwards in capital for whatever reason, it is a very good idea to go to a good quality corporate finance advisor and get some advice on how to do that.
So tell me how I can find out more about this?
There are number of information sources on the internet. I always direct people to Corporate Finance TV because it has gone numerous interviews, you can sit in the comfort of your own home and listen to videos of tutorials on all different aspects of the process and raising money and what management buy outs are but also you can listen to interviews with people who have done deals, people who have raised money, people who have put money into businesses so private equity firms, venture capitalists and people about their criteria for putting money into future businesses. So there is a whole wealth of information there and it is all available free and its largely in video format although there are a tremendous amount of blogs there also.
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