Category Archives: Private capital

Growth in Growth Capital

Encore – This article was originally posted on the former Monarch Bay Securities website:

With every phone call or email exchange, I’m more convinced that one of the most rapidly growing segments of the capital market is, appropriately labelled, growth capital.

This is a relatively newer segment of the private capital market that sits between the two well-established segments, venture capital and private equity.

Unicorns

By many indications, venture capital is also growing.  But, from my experience, the statistics may be skewed.  I sense that the “unicorns”, the companies with a valuation over $1 billion valuation, are getting investment dollars and in big amounts.   Companies outside the fabled unicorn segment, aren’t finding investment nearly as obtainable.  The large amounts of capital gathered by the “unicorns” are distorting the figures.

CB Insights, the investor database company, and Credit Suisse, the investment bank, provide a chart tracking the unicorn trend.

 

 

 

 

 

 

 

Party’s Over?

I doubt that anyone considers the traditional private equity sector to be growing.  To be sure, over the last couple decades, private equity funds have had a great run.  The private equity firms’ portfolio companies have enjoyed the tailwind of a growing global economy and a declining interest rate environment which has made substantial financial leverage helpful.

Now, the scarcity of the perfect private equity deal is intense and competition among firms has driven up the multiples that private equity firms need to pay to win. (Click for article on recent stats). The tailwinds previously enjoyed by private equity may have become headwinds.

No Revenue, No Thanks

That takes us back to the growth capital segment.  While there’s no universal definition, in general, growth capital investors look for private companies that have some revenues, say $3 million or more.  While the revenue threshold varies, what seems to be universal is the requirement that the commercial markets have signaled acceptance of the company’s product or service.

Some growth capital providers require at least a breakeven profit level.  In my experience, most accept losses at least initially.

Growth capital firms look for companies into which the firms can provide capital and, perhaps, guidance. The capital and guidance are expected to enable the companies to accelerate growth, “to step on the gas” so to speak.

More Funds and More Money

Brand new growth capital fund announcements are highly visible.  I get them in my emailbox regularly.

What’s less visible but clearly discernable from the daily phone conversations is the shift of capital allocated to growth capital from venture capital or private equity.  Sometimes, a fund manager simply  shifts emphasis in an already established VC or private equity fund and sometimes, the shift coincides with a new fund.

The combination of more funds and more money looking for growth capital situations makes the sector a “red hot” source of capital.

If your company fits the growth capital sector, this may be the time to raise capital.  We’re very active in the sector and welcome the opportunity to discuss your capital needs.

Early Stage Growth Investors Wanted

Dennis McCarthy – (213) 222-8260 – dennis@boustead1828.com

My colleagues and I see an opportunity for investors to earn a great return and avoid the crowd by investing in early stage growth companies.

If your fund will consider investing in early stage growth companies, please let us know.

We at Boustead represent attractive companies which need capital.

We’d like to get to know your fund to show you current and future opportunities.

Growth Stage Companies

Growth stage companies, in our definition, reside on the continuum between venture capital stage companies and mature, seasoned companies.

We define growth stage companies as having products or services which have commercial traction.

Growth stage companies are past the product development stage.  They’re products are not beta samples.

Customers can and do buy these growth stage company’s products or services. Many of our clients, for example, have great, “name-brand” customers.

Growth Stage Investors

In prior articles, we’ve reported that there is a growing universe of funds looking to invest in growth stage companies.

These growth stage investors may be specialized funds, family offices or wealthy individuals.

Growth stage investors want to add capital to expand production or sales which will further accelerate a company’s growth.

The Gap At The Early Stage

One nagging question, however, is just how much commercial traction must the growth stage company show to attract the growth stage investors.

In today’s market environment, the simple answer to this key question is that growth stage investors want “more”.

More revenues already booked, with products shipped or services delivered.

For example, if a growth stage investor used to require a company to have $5 million of historical revenue, now it likely requires $10 million.

We deal with growth stage companies regularly so while this is not a statistical sampling, it reflects substantial daily interaction.

Early Stage Growth Investors Needed

With many growth stage investors requiring “more” revenue, we’re looking for growth stage investors wanting to avoid the crowd and invest in early stage growth companies.

If you’re an early stage growth investor, please contact us.

Good Advice for Young Companies

Investors and young companies increasingly recognize that the bubble days are over (Click here and here).

Many IPOs are trading below their initial prices. There’s discussion of down rounds even for unicorns.

In this sobering environment, Ajay Agarwal, a Bain Cap partner, penned a useful article in TechCrunch (Click here) about how the management of younger companies, specifically startups in the article, need to respond.

At MBS, I work more with growth capital companies than with startups but the advice in the article rang true for my clients as well.

  • Valuation – Valuations have come down, get over it to get a deal done.
  • Accelerate profitability – In essentially all situations, companies need to figure out how to become profitable more quickly.
  • Expect Existing Investors to Step Up – The financing market is volatile; external capital isn’t always available. There may be periods when existing investors simply have to carry the company.
  • Be Open to Investors – We’re seeing high net worth family offices and Asian investors with both interest and capital. Companies should be open to these less conventional sources.

Please contact us at Monarch Bay to discuss your capital market goals.

SEC Adopts Final Equity Crowdfunding Rules

SECLogoThe SEC has now adopted the final rules under which private companies can raise capital in the format described as “crowdfunding”.

The SEC has scheduled an extra long 180 days for implementation in order to permit new portals to comply with the rules.

A quick summary of the rules:

1. Permits a private company to raise up to $1 million in a 12-month period.
2. Offering must be conducted through a broker-dealer or registered funding portal.
3. Issuer must disclose its information on a new Form C.
4. Depending on the size of the offering, historical financial information may be required and may need to be reviewed or audited by independent accountants.
5. Investor’s investment amount will be limited based on the investor’s annual income or net worth.
6. There are issuer post-offering reporting obligations to the SEC.
7. The funding portals, themselves have procedural rules to follow.

For an easy to read summary of the new rules provided by The SEC Law Firm, click here.

To read the SEC press release, click here.

Top Corporate Investors

Corporations continue to be major investors in private companies as initially reported in “Corporations are Active Investors”.

Not surprisingly, Google Ventures and Intel Capital lead the list.

In an article by CB Insights, the online database for VC, growth capital and private equity investing, CB Insights tracks and lists the top 100+ corporate investors.

The list includes many international firms which seem more willing to own stakes in higher risk, younger companies.

Excerpt

The number of corporations strategically investing in private companies has enjoyed an upward trend in recent years, across industries including healthcare, media, finance, and energy.

In Q1’15, 106 different corporate venture capital arms (CVCs) completed a US investment — a multi-year high. That’s an 82% jump from the same quarter three years ago, according to CB Insights data.

To read the article including the full list of corporate VCs (Click here).

Deal Velocity Crowdfunding Site Operational

LogoMonarch Bay is a sponsoring broker-dealer of the crowdfunding site DealVelocity.com.

Click here to go to the dealvelocity.com site.

DealVelocity is a cloud based SaaS funding platform for equity and debt offerings conducted pursuant to Titles II of the JOBS Act of 2012 for Rule 506B and 506C private placements. The platform has been designed for use by other FINRA registered broker-dealers who are looking for a private-labeled, FINRA compliant, online transaction platform.

DealVelocity is comprised of investment bankers, entrepreneurs, and tech junkies that care about:

   – Eliminating frictions, so companies can change the world.
   – Connect companies and entrepreneurs with their optimal financing partners, on the most ideal terms, fast.
   – Create and enable tools for investors to help companies and the entrepreneurs who start them.
   – Provide a secure platform with regulatory compliant tools and features.
   – Process and syndicate transactions for FINRA registered Broker Dealers.

As entrepreneurs, the DealVelocity team knows the challenges and the frustrations management goes through when growing a company. That is why DealVelocity is determined to eliminate the growth capital challenges that all business owners face in growing a business. DealVelocity has done this by creating a platform, network and tools to allow your company to seamlessly execute on its growth plans.

SEC Proposes Eased Crowdfunding Rules

The SEC has proposed new crowdfunding rules which would dramatically expand the potential pool of investors.

Click here to go to read more at Monarch Bay’s website.

By Dennis McCarthy
Google

SEC’s Forum on Small Business Capital Formation

SECLogoThe SEC’s annual forum on small business capital formation, which has become an important forum for ideas and discussion, will be held on November 21st.

Thanks to Morrison & Foerster LLP  for the alert.

Click on the link below or copy and paste the link into your browser.

http://www.jdsupra.com/legalnews/sec-forum-on-small-business-capital-form-99846/

By Dennis McCarthy
  Google

Monarch Bay’s New JOBS Act Posts

Monarch Bay Securities (mbsecurities.com) has initiated a new series of posts on the latest developments on JOBS Act funding.

Click the link to go to the first post, “Hold the Celebration!” and sign up for all the latest posts.

By Dennis McCarthy
Google

Practical Guide to New Deal Marketing

While I’ve seen many articles alerting us that new deals can be more widely marketed, including my post (click this link), this is one of the first articles that I’ve seen that describes the practical elements of how to implement a marketing program under this new regime.

Carlton Fields, a law firm headquartered in Florida, produced a useful summary for us.  Please click on the link to take you to the article at JDSupra Law News:

http://www.jdsupra.com/legalnews/how-to-use-electronic-media-to-access-ac-77767/

By Dennis McCarthy

Google