Businesses, entrepreneurs and commercial real estate developers all power their businesses with other people’s money, and the crown jewel is the successful capital raise.
The issues regarding business financing are far more complex than those attending consumer credit. You are the expert in your business and are automatically assumed to know what you are doing, whether you do or not.
The decision to raise equity capital, obtain credit financing or a mixture of the two involves many processes of critical decision-making that, in the end, are based upon calculated risk-taking. Historically, equity capital raises have always been the most problematic for entrepreneurs, small business enterprises and developers.
Raising Equity Capital Can Be Complicated
Understanding the over-arching process, opportunities, risks and regulatory constraints is vital to making the decision of how to proceed, how to allocate capital resources, and how to preserve the future capital gain opportunity the business value proposition presents. One way of helping you to stay focused on the prize is to group your activities and goals into three (3) basic categories:
- Have Done Activities – the activities you have done to demonstrate the validity of the value proposition of the business.
- Can Do Activities – the activities and documents that demonstrate your company can do in terms of being bound to a legal contract with investors to enact the business value proposition
- Will Do Activities – the activities and documents that demonstrate what your company will do to act on the value proposition of the business and provide a capital return to investors.
Equity Capital Raise “Have Done” Due Diligence
The equity capital raise “have dones” consist of the documents and reports that provide independent confirmation of the nature and scope of the business opportunity that is the core of the value proposition used to attract future investors. This is called “due diligence”.
CRE new construction equity raises typically have the most complex due diligence documentation requirements, but these can be just as intense for other businesses. Having the support of a due diligence expert and legal team is critical in fully documenting these fundamental requirements.
Equity Capital Raise “Can Do” Due Diligence
The equity capital raise “can do” activities focus on proving the business can legally enter into the contract between the future investors and the business. This portion of the offering process focuses on the organizational documents, legal opinions and supporting local, state and/or federal filings that prove the business is a legal entity and has the capacity to undertake the business activities it is promoting. These activities require specialized legal skills and consultants to help expedite but without them, the offering cannot go forward.
Equity Capital Raise “Will Do” Activities
The equity capital raise “will do” activities consist of the documents that support the legal contract between the business and the investors.
Conceptually, the offering documentation is the final stage and what the investor and public first see in the form of the offering circular, subscription agreement, regulatory filings and attending due diligence documents. This documentation set represents the outcome but requires intense coordination of many disciplines in order to pull it off.
The process can be daunting but we all start somewhere. Rainmaker Analytics offers a comprehensive consulting support program for capital offerings under Regulation CF, Regulation A and Regulation D for businesses, entrepreneurs and commercial real estate developers seeking up to $75 million in at-risk capital contributions from the capital markets.