Navigating the Capital Markets: An Entrepreneur’s Guide to Raising Capital John Kraska, Managing Partner Lou Caltavuturo, Partner Hales & Company | Hales Capital Securities
Biographies
Led management buyout of Hales from Arch Capital Group, Ltd in 2004
Over 15 years experience as an investor and banker, having completed over 75 transactions, representing over $1.5 billion in transaction value
Graduate of Wharton School and University of Pennsylvania
Over 20 years experience as a banker and regulatory to the financial services industry with an emphasis in insurance and healthcare
Prior experience with Fox-Pitt Kelton focusing on capital raising and Deutsche Bank focusing on lending and structured finance
Graduate of Columbia Business School and Colgate University
Overview of Hales
Founded in 1973, we are one of the oldest and most experienced advisors specializing in the insurance industry
Hales Capital Securities is our registered broker-dealer that engages in securities related transactions on behalf of its clients
Our core business is advising agents, brokers, service providers and companies on corporate finance matters: merger & acquisition transactions and accessing equity and debt capital
We offer additional financial and strategic advisory services such as due diligence representation, valuation and perpetuation planning
Overview of Hales
Overview of Hales
Overview of Hales
Overview of Hales
Overview of Hales
Guide to Raising Capital
Guide to Raising Capital
Amortizing and secured against stock or personal guarantees
1.5 – 2.5x EBITDA; LIBOR + or Prime + pricing; strict financial covenants
Bullet loans
15% - 25% total cost depending on leverage
Liquidation preferences, mandatory put options / redemption privileges
Generally priced to achieve 25% - 40% returns
Guide to Raising Capital
“All Private Equity firms are the same”
“My company is worth X, so I can sell 33% of my company for 33% of X”
“Borrowing is always better than selling equity”
“I am only raising $10 million or less, that should be easy”
Guide to Raising Capital
Guide to Raising Capital
Guide to Raising Capital
Guide to Raising Capital
Guide to Raising Capital
Step One: The Business Plan – Why am I raising capital?
Step Two: The Financial Plan – How much capital do I really need?
Step Three: The Capital Structure – What kind of capital can I attract?
Step Four: The Execution – Show me the money!
Step One: The Business Plan
Step One: The Business Plan
Clear explanation for the use of capital
Investors never write blank checks or invest in blind pools
Differentiation in strategy or market – be specific
What advantage do you have over competitors?
What is happening in the market that may drive growth?
Honest self assessment of competitive threats
Management and track record
Step One: The Business Plan
Step One: The Business Plan
Step Two: The Financial Plan
Detailed set of financial projections with assumptions
Earnings, Cash Flow and Balance Sheet
Detail demonstrates understanding and gives confidence
Growth rates and margins that make sense
Anticipate questions from financial analyst types
They have to defend recommendations to an investment committee
Step Three: The Capital Structure
What are Lenders demanding?
Collateral
Personal guarantees
Financial covenants
Co-investment of equity
Ability to get loans repaid
What are Equity Investors demanding?
Aggressive growth/margin hurdles
Control and governance (i.e., “Alignment”)
Liquidity
Step Three: The Capital Structure
Step Four: Execution
Prepare before Contacting Investors
Determine needs and types of capital
Control information flow versus reacting to investor demands
Resources and Focus
Contact multiple sources simultaneously in a competitive process
Time consuming: Meetings / Presentations / Follow-up Requests
Due Diligence and Documentation
As rigorous and costly as a sale
Step Four: Execution
Conclusions
Raising capital is harder than you think
Lots of misconceptions; wide variety of capital sources
Preparation, process and focus are paramount to success