EQUITY CAPITAL POWERS SMALL AND MIDSIZE BUSINESS GROWTH: EQUITY CAPITAL THEREFORE POWERS NATIONAL PROSPERITY
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If you are like most small & midsize business owners, you will have expansion plans hidden away in your bottom desk drawer, just waiting for the right opportunity to be activated.
If you are like most small & midsize business owners, then you will already know that equity capital powers small and midsize business growth.
If you are like most small & midsize business owners, then you most probably don’t have enough liquid cash in your bank account to fund your business expansion plans. And almost certainly you won’t want to borrow the money to fund your expansion plans.
If all that is you, then you are on the right webpage.
Warning: There is a considerable amount of information here concerning the use of equity capital by small and mid-size Business Owners. I understand how important this information is to you when making up your mind as to who can best help you with the expansion of your business. Consequently, as the guide covers a lot of ground, expect a long read.
Commercial lenders are not the friends of SMBs that they pretend to be
Let me start with this point. When you want to enter a growth phase, do you really want to incur a large long term debt that will eat into the future profits that your business expansion plans will generate. Not only that, but the lender will probably want you to start repaying the loan long before you see any benefit flowing from your expansion plans. This will undoubtedly cause difficulties with your cash flow; a most undesirable outcome.
Beware of commercial lenders. Traditional commercial lending organisations are not the friend of small and mid-sized businesses that they pretend to be. So let’s ignore them and, with an open mind, look at some funding alternatives that are more sympathetic and in-tune with the small and mid-sized business modus operandi.
Now, if I could show you how to go about getting all the $$$ you need to expand your company:
- without you borrowing any money or paying any interest,
- without you breaking the law, and best of all,
- without you having to pay any of the $$$ back,
are you with me?
Yes, I already know your next question: You want me to explain how we can together try for all the $$$ you need to fund your business expansion plans. Well, fasten your seat belt because here we go:
This page is about how the equity raising process works
Firstly, a very warm welcome to my webpage where we get into the action you have been waiting to hear about: how the equity raising process works and how I help business owners and entrepreneurs like you to get into the equity capital market to try and raise funds for the business development or expansion of your company. This webpage therefore is particularly important to you if you are
- a business owner needing funds to expand your factory, or undertake other significant capital expenditure, or develop and market new products or new services, or enter new markets, particularly export markets, or
- an entrepreneur seeking funds to commercialise a new product or new service and take that new product or new service to the market.
The entrepreneurial company’s dilemma
The entrepreneurial dilemma. If either of those hats fit you, then your requirement for development or expansion funds is both quite normal and eminently typical. I therefore completely understand the dilemma you are in at the moment. On the one hand, you want to start your project as quickly as possible but on the other hand at this particular time, you do not have the means or the ability to tap into a source of funds to permit your venture to get under way.
Give debt a miss. As you are here in my website and reading this particular webpage, I am guessing that for whatever reason – the reason doesn’t matter – you do not want to use loan funds, which involve a payback commitment that you don’t want to encumber yourself with at the moment.
The entrepreneurial trap. That is a very limiting framework boxing you in. It leaves you no wriggle room to manoeuvre forward. Two points therefore arise from your situation:
- The first is that I fully understand how important it is to your future growth activities that a source of funds be tapped so that your project can start.
- The second point is that you must be given assurance that the source of funds to be tapped will provide the funds you require in accordance with an agreed draw-down schedule.
Equity Capital: the way to go
Equity capital. A particularly beneficial and helpful way for you to implement your expansion plans is to raise equity capital. Have you ever considered the pros and cons of using equity capital?
Equity capital is valuable to you because it does not require repayment and it does not attract interest payments.
Equity: pros & cons. There are of course both advantages and disadvantages in the use of equity capital, and I have prepared a webpage to explain them. Here is a link to the Pros & Cons page. It is most important that you read this webpage before you decide if the use of equity capital is suitable in your circumstances.
Equity: there are implications. If you would like to further investigate how to go about raising equity capital after you have carefully considered the advantages and disadvantages, please don’t hesitate to telephone me confidentially and without any obligation on phone 61 (0) 405 702 644. In that conversation, we can discuss the implications for your company in pursuing such a course of action and review the legal and financial technicalities in relation to raising equity capital from the public.
There are two methods of raising equity capital: one is very expensive, the other is modestly priced
There are basically two methods of raising equity capital from the public: One is very, very expensive; the other involves a modest cost. The Australian Corporations Act 2001 makes it illegal for individuals or companies to directly raise equity capital funds from the public without the issue of an expensive prospectus or product disclosure statement that has been first registered with the Australian Securities & Investments Commission (ASIC). Under the terms of ASIC Class Order 02/273, which is a set of official government regulations that govern my equity raising activities on behalf of clients, I have a personal exemption from that Corporations Act requirement.
This personal exemption permits me to issue (that means publish and promote) a formal Offer Information Statement called a Class Order Compliant Document, COCOD for short, on your behalf to help you to raise equity capital funds without breaking the law.
Importantly therefore, I provide you with three crucial imperatives to help you raise the equity capital you need:
- the ability to raise the equity capital funds you need,
- the appropriate framework for raising the equity capital funds you need without breaking either Australian law or shari’ah law, and
- the opportunity to raise the equity capital funds you need at modest cost (that is, without incurring the high costs involved in preparing an expensive prospectus and then raising funds through a small stock exchange float).
Please have no doubt that I come into the equity raising equation completely on your side.
Raising Equity Capital: my exemption – your benefit
How do I provide the three crucial imperatives? I can provide you with these three crucial imperatives because I work under the terms of ASIC Class Order 02/273. This Class Order exempts me personally from the requirement of having to prepare and register an expensive prospectus or product disclosure statement with ASIC before starting an equity raising program on your behalf.
What’s the importance of this, really? The importance of my personal exemption is that it permits you and your company to use my services to safely raise equity capital from the public. Under the law, your ability to raise money from the public is very limited and Courts have imposed hefty fines on persons who have breached the Corporations Act fund raising laws.
What’s the catch? Of course, to get the benefits of my exemption, you will have to formally appoint me as your consultant to help you raise the equity capital needed. The principal benefits to you of my appointment as your consultant is that I help you to raise the equity capital required through a sale of securities (shares) in your company without breaking any laws and without you having to face the high cost of preparing a prospectus or product disclosure statement. The cost of preparing a prospectus or product disclosure statement is prohibitive to small and midsize companies.
What’s the full compliance cost? Prospectuses and product disclosure statements can cost upwards of $AUD 100,000 to prepare, a figure that excludes the costs of listing on a small stock exchange. The costs of listing on a small stock exchange (such as the National Stock Exchange or the Bendigo Stock Exchange) can easily add another $AUD 100,000 to the bill. Prospectuses and product disclosure statements also have an in-built time-delay factor that militates against quick action, a consequence of the preparation requirements and the ASIC registration process.
The categorisation of stages for raising equity capital
Stages of equity funding. Equity capital from venture capital firms, private equity firms and private investors tends to be categorised by the development stages of the specific ventures requiring the capital investment. Venture capital firms, private equity firms and private investors, by dint of their own corporate investment policies and the level of funds they have available for investment, make a determination as to the nature of the ventures that they will be most interested to explore, and the industries that they will invest in.
Investor scope restricted. Venture capital firms, private equity firms and private investors therefore will usually only invest across one or two of these stages and industries. The categories of investment, which are largely self-explanatory by name, are:
- seed funding (for research & development, and proving feasibility or viability),
- start-up funding (to kick the project off),
- 1st stage funding (early expansion or development) funding,
- 2nd stage funding (late expansion) funding,
- LBO/LBI funding (leveraged buy-out/leveraged buy-in) for large-scale investment & ownership change by external investors,
- MBO/MBI funding (management buy-out/management buy-in) for ownership change by an internal management group,
- mezzanine debt funding, often used to fund building and construction projects,
- pre-listing or IPO funding (initial public offering) funding to prepare for a stock exchange listing,
- business turnaround funding, to bail out distressed companies that have good growth prospects,
- international expansion funding, to fund the entry into export markets, and
- generational transfer funding, to assist the conversion of successful growth companies to more relevant managerial structures.
No guarantees for success
I must stress a most important constraint here. There are no guarantees that investors will participate in your venture. Investors, by the nature of their profession, are canny, wary, cautious and prudent. Your success therefore will depend almost entirely upon your ability to
- justify your management team’s expertise to be able to successfully manage your venture, and
- provide investors with full details about your venture’s financial, marketing and sales forecasts.
However, just because the going gets a bit tough is not a valid reason to give up, is it?
What is your next step? You must read my four-part report ‘Raising Equity Capital’
Equity raising is collaborative. To look at how the equity raising process works, and how you and I will be working together in the implementation of the process, you need to read my four part report Raising Equity Capital, which you can access from the main menu at the left hand side of your screen. In these four reports, I set out a brief outline of the steps involved in raising equity capital. The important point to note in raising equity capital is that it must be a collaborative effort between you and me. The first stage in the process rests on your company becoming ‘investment ready’ and ‘investor friendly’. This will be the priority task.
Investors rule! Being investment ready broadly means that your company will be acceptable to investors in terms of your business plan and your offer information statement. Being investor friendly broadly means that your corporate structure will give investors confidence that, to the highest degree possible, you will protect the funds invested in your company and ensure that the funds will only be used for purposes set out in the Shareholders’ Agreement. There are many important issues involved in the equity raising process of course, and they are all discussed in a direct, matter of fact way in my four part report Raising Equity Capital.
Raising equity capital: two important ‘Please Read Me’ statements
One about Me …
Equity raising limitations. Under ASIC Class Order 02/273, as a Business Introduction Service I cannot raise more than $AUD 5 million dollars across more than twenty private investors in any rolling twelve-month period. This reference to twenty private investors does not include ‘sophisticated’ investors or ‘professional’ investors. ‘Sophisticated’ investors and ‘professional’ investors are defined respectively as investors who have the ability to invest a minimum of $AUD 500,000 in any one investment or control in excess of a defined level of capital assets set out in the Corporations Act 2001.
Is this really restrictive? What this means in practice is that I cannot raise more than $5 million from more than twenty small investors in any rolling twelve month period. However, there are no restrictions on the level of investment I can raise from sophisticated investors, professional investors and venture capital or private equity firms.
… And One about You
Legal responsibilities. I have to advise you that there are legal responsibilities on an issuer of securities (that’s you) or a seller of securities to exercise a general duty of care for a true and fair disclosure to potential purchasers (the investors). This affects investors in two ways: Firstly, the issuer or seller of securities in the form of shares has the responsibility for a true and fair disclosure to the purchasing investor. Secondly, an investor wishing to divest a private equity investment must exercise the same responsibility in respect of any subsequent investor purchasing the shares from the first investor.
Raising equity capital: action time
It’s your future! Embrace it. Just imagine how your future would change if your company were to to raise, say, a million dollars or more to fund your company’s expansion into new markets, new products or new services. Could I therefore leave you with this thought to ponder? Picture yourself three or four years from now. Where do you want you and your business to be? Do you want your company to be bigger and better than it is at the moment? Do you want your company to be able to give your family a substantial improvement over their present lifestyle? They deserve it, don’t they?
Action time. So why not give me a phone call right now on telephone 61 (0) 405 702 644 and confidentially discuss how we may work together to turn your ideas and dreams of expansion into a successful reality. I have no objection to your calling me at any time, although I must advise you that I live in the Australian Eastern Standard Time Zone: GMT +10 hours.
Please Note This Important Personal Limitation. As a sole-practitioner, I simply cannot accept every assignment I am offered. There are unfortunately not enough hours in each day to accept them all. So if you can see that collaboration between us could be helpful to your company’s business expansion, please call me now. For fairness, I have to operate on the ‘first up, best dressed’ principle.
Yours sincerely, Chiron! the business doctor.™ ... relieves business pain!™ Contact Information:
© Graham Segal, Author. March 2013. All Rights Reserved Creative Commons Licence:
This website and the associated webpages content are produced by Graham Segal trading as Chiron! the business doctor.™. They are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License based on Graham's work at https://chironthebusinessdoctor.com.
Graham Segal
Date this webpage last reviewed/updated: 5 May 2013