Equity funding for growth is necessary and desirable but it’s not emergent and exigency. The company has time to explore the right kind of investor. The company has the highest bargaining power and can get the highest premium when it is in a growth phase or is seeking funds for growth projects or prospects. A business should get equity funding when the going is good. Look at the three bargaining situations of a business below to understand why businesses can command a premium when they are doing well and why they are liquidated at scrap value when the situation goes bad.
Growth initiatives that can be funded through equity
Following are the different kinds of requirements of funds in growth activities in a company:
- Working capital for operating substantially above break-even capacity
- Working capital for 100% (or more) capacity utilization
- Capacity expansion through refurbishment, improvements, revamp
- Capacity expansion through replacements & modernization
- New greenfield or brownfield projects to expand the capacity
- Inorganic growth by directly acquiring ready-made businesses
- Upsell by the implementation of emerging technologies such as AI, IoT
- Product portfolio expansion by adding products of new specifications or new configurations
- Geographical market expansion
- Vertical – forward & backward integration for better command over the value chain
- Horizontal or lateral expansion to diversify risk a bit & explore synergies
- New product development, technology, R&D
- New business structure, new contract structure
- Business restructuring, partial or full debt redemption
- Foreign trade, i.e. exports
- International expansion i.e. business presence in the foreign countries
- Conglomeration, i.e. risk mitigation by diversification in unrelated businesses
Advantages of timely strategic transactions, alliances, equity funding & M&A
See: Consultancy services for business growth through equity funding
Hiring consultants for growth funding
But don’t hire compliance professionals, single domain experts, technocrats & brokers to get equity funding if you are a medium or mid business without a dedicated strategy, finance, corporate & legal departments. The network of investors is necessary but not at all sufficient to close a deal. Hiring wrong people has created a sort of hopelessness among SMBs. As a businessperson, director or top manager, you must give a lot of time to create value for future valuation & tap the current value by undertaking transactions.
Apohan’s services for business growth through equity funding
Below is the list of activities carried out during delivery of Apohan’s services for equity funding & allied strategic transactions of Indian SME businesses:
- Client-Apohan non-disclosure agreement (NDA)
- M&A consulting proposal
- M&A consulting contract
- M&A process presentation
- Business profile/Promoter profile
- Profile of target company/investor
- Inception report
- Schedule of investment requirement
- Analysis of basic Financial documents
- Analysis of basic corporate documentation
- Consultant’s plant/facility visits
- Teaser (MS Word) (Anonymous)
- Business presentation (PPT) (Anonymous)
- Information memorandum, if needed
- Datasheet (if required)
- Business plan
- Formulation of the deal strategy
- Preparation of strategic options
- Financial / Valuation model (MS Excel)
- Advertisement drafts for online media
- Advertisement drafts for physical media
- Circulation of advertising to investors
- Shortlisting of eligible investors
- Identification of the investor
- Mutual NDA (Client & Investor)
- Investor’s plant/ facility visits
- Preliminary due-diligence of investor
- Presentation to investor
- Investor proposal/ offer analysis
- Financial / contractual negotiations
- Deal Structure (transaction type, instrument type, transaction details)
- Term-sheet for contract 33 Document list for data room
- Assistance in seller due diligence
- Assistance in reverse due diligence, if needed
- Handling of investor’s query
- Draft investment contract /BTA/scheme 3
- Final Investment contract 39 Closure of Deal / Execution of contract 4
- Amendment drafts in MOA/AOA
- Board / GM resolution drafts
- Disbursement of Funds
- Accounting of M&A deal
- Taxation of M&A deal
- Issue of equity/security to the investor
- Handholding for 6 months
- Monthly Status Report