Hi everyone, I'm asking this question because I don't see a lot threads/comments about this. What does a boutique shop / a group at a large bank do when we say they do equity raising? What kind of work is involved? Pitchbooks? Any quantitative models like comparable companies, DCF, precedent transactions?
Thank you so much.
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They simply act like a middle man between a company raising funds and companies investing funds. I am currently doing this with the help of one such company like that.
They would work on a model (DCF) valuing your company and convince their "friends" that it's a win. You either prepare your DCF and they independently review it or they do this for you. So basically you prepare a good story, sell it to them and they market it in exchange for a fee:
Normally:
How serious of a challenge is it to raise private equity for a businessman? (Originally Posted: 09/13/2017)
Anybody in PE here that knows the process ? I'd like to be a businessman in the long-term, but as a failed entrepreneur (couldn't even raise a million for a venture in college that was pretty seriously focused on), I feel fear in my stomach thinking about how difficult it is to raise funds.
From signing a term sheet to due diligence, can someone give me an idea of what the investor's work flow looks like and time frames ?
TY
Curious Bump
aaaah bumpio
There are way too many factors to answer your question. The partners at my fund had no trouble at all, granted they were H/W/S MBA grads with an extensive network. What qualifications do you have? What does your background consist of? What is your end goal? These are just a few initial questions that need answers prior to expecting anyone to offer you solid advice.
But I'm not trying to join a PE firm. I'm saying how does one raise funds from a PE firm. Why would your educational background matter if you're raising PE ? You could be the CEO of a dam operating company (infrastructure is a solid asset class) and be an engineer from a no name school and it wouldn't matter from a financial return perspective.
It feels like you're asking about how easy is it to raise VC $, not PE $. Are you asking about raising start up funds for a venture, growth funds for an emerging company, or selling a control stake in a mature business to an LBO shop? In each case, you're offering something very different to investors.
Let's say I'm the CEO and Chairman of a infrastructure behemoth that operators PPP projects. Airports, dams, toll-roads.
I want my debt to equity to be low enough so cash flow can cover my interest payments (trying to buy without full equity).
I want to rope in a PE company because I don't have the money and we can both make profits if we put our equity together - it's a big asset, if any one person tries to fully finance it themselves they'd have cash flow issues (assuming they don't have enough equity).
Questions about raising equity capital (Originally Posted: 04/01/2009)
I have some questions about the math of raising capital. Can anyone provide some good details on how this process is conducted, or point to a good source that shows examples?
Specifically, how do you determine what price and number of shares to issue?
The number of shares depends on the price per share and the amount you need to raise. You can define the issue price in several ways, such as: bookbuilding (a process where investors indicate what they would pay for a stock); DCF Valuation; Trading Comps; Looking at precedent comparabable IPOs and get a relative multiple (because at the end of the day you are selling the company to the market, etc...
After defining a price for the stock (say $50 per share) and knowing you need to raise let's say $500m, you will figure out you need to issue 10,000,000 shares to raise those $500m...
Don't forget to consider the potential dilution on existent shareholders.
So they base it off of a price they determine? What do they use to determine the price? I understand valuation very well; I just am not familliar at all with the process of raising capital.
Do they just arbitrarily pick a price?
The price can be determined using one of the methodologies I listed above: bookbuilding, DCF, Trading Comps, Precedent IPO's, etc... And of course, it also depends on the market sentiment at the moment of issuance (for example now, there is almost none IPOs - too low valuations in the market).
Yes, but the price depends on the number of shares you issue does it not? So how do you determine the optimal amount of shares to issue to achieve whatever price?
You can value a company with DCF no problem, but if you want to issue 1000 new shares then it will obviously cost a lot more per share than issuing a million new shares. This is the part I am confused on.
Thanks for the help btw, lui
No, the price doesn't depend on the number of shares you issue, it is the reverse logic - the amount of shares depends on the price per share and amount (in $ dollars) to be issued.
That's how it is: 1. Define the amount to be raised (i.e: The company needs $200m to finance its expansion to the European market - open up new stores, etc.)
Run valuation to define how much the company is worth (DCF, Trading Comps, Precedent Comparables IPO, etc)
Based on the company's value + bookbuilding (market's view / perspective on the stock price) define the price per share for the issuance
Then, divide the $200m by the defined price per share (say $50 per share) to get to the number of shares to be issued (in this example, 4,000,000 shares would be issued to finance this project)
I hope it is clearer now for you... if any additional doubt, just post back.
My misunderstanding comes with step #3. It seems to me that 4,000,000 shares valued at $50 per share would be the same as if 2,000,000 shares were issued at $100 per share. I don't see how the $50 is selected. Is it just based on investor and market preference at the time of issuance?
Raising money for VC equity (Originally Posted: 07/17/2013)
I was asked by my firm (as an intern) to put together a presentation on a VC firm that is looking to raise equity. What are the challanges and risks of working on deal like this? as opposed to a more traditional business. This is a space we aren't very familiar with.
If senior monkeys with experience in this area could lend their 2 cents that would be great.
Thank you.
You would be serving as the placement agent? If you don't have a sales channel with networks into pension funds, family offices, etc. (the LPs), your firm will have a very hard time getting this done. Most placement agents have a global sales team with access to active PE/VC investors.
yeah
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