Embed Doc
Copy Link
Readcast
Collections

CommentGo Back

Download

Investment Bank Funds Business Growth by Ranni Hillyer

How a Boutique Investment Bank Funds Business Growth

By Ranni Hillyer Chief Operating Officer, Aero Financial Inc.

In a previous article, I described the seismic shift in the investment banking industry back tobasics in 2008 and 2009. Among smaller boutique investment banks, “Back to basics” means arenewed focus on filling the financial needs of emerging growth businesses and truly serving thefinancial needs of individual investors in today’s market. This article goes into greater depth inhow a boutique investment bank fills the financial needs of young growth businesses today.To begin, it’s important to understand what an investment bank is NOT.Most important, an investment bank is not a venture capital firm or a private equity firm. Inother words, an investment bank does not, as its primary activity, create a pool of funds andinvest those funds in client companies. On the other hand, some investment banks such as AeroFinancial, do manage pools of funds under the bank’s control and can invest directly in clientcompanies as a secondary activity in order to take advantage of extraordinary opportunities. Thisis not however the investment bank’s primary business activity. An investment bank does havethe credibility to introduce client companies to appropriate venture and private equity firms,when the client by themselves would not be able to get the attention they need.Secondly, an investment bank is not an incubator. In other words, as a general rule, we do nottake on the responsibility of offering business services and management training for clientcompanies. On the other hand, some investment banks such as Aero Financial, make a specialeffort to refer their clients to a network of vetted third party partners to handle tasks such asmanagement training, executive search, accounting and public relations.Lastly, an investment bank is not a general-purpose PR firm. On the other hand, under theumbrella of investor relations, an investment bank such as Aero Financial does offer PR servicesdirectly related to building client’s reputation among investors for the purpose of raising capitalor increasing stock value.In sum, an investment bank is not primarily a venture capital firm, nor a private equity firm,incubator or PR firm, but it may offer these types of services or refer clients to partner firms forthese purposes. So what does an investment bank such as Aero Financial do for small growthcompanies as its core competence?Our core competence is to help present client companies to appropriate investors for the purposeof raising capital. We have the credibility and expertise to do this successfully. Such a capital

Investment Bank Funds Business Growth by Ranni Hillyer

raise can either be structured as a private placement or as a registered public offering. I’ll reviewthe different purposes of private placements or public offerings in a separate paper. For now, itsimportant to note the similarities. In both cases, the investment bank’s primary function is to getthe client company in front of appropriate investors AND their advisors,

with the right message

.In order to do this, the investment bank can:1.

Identify the kinds of investors and advisors needed,2.

Determine what those investors and advisors need to hear and see,3.

Impress and excite these investors and advisors with the possibility of growth,4.

Comfort the investors and advisors with the mitigated risks of the investment,5.

Determine the most efficient way to get in front of those investors AND theiradvisors,6.

Craft the message for those investors and their advisors, in various forms of presentation,7.

Arrange to get the message out.With the client company’s agreement, the investment bank can also manage the incoming callsand appointments, and make presentations with the help of the client company’s executive team.If the licensing requirements and other compliance issues are handled, the investment bank canalso solicit an investment and handle the transaction itself.It is important to note that the investment bank does not guarantee a specific amount of funds tobe raised. However, the investment bank can use all of its resources to get the word out andempower the client company to complete a round of investment.As covered in a separate paper entitled “Choosing the Vehicle for Raising Capital for anEmerging Growth Company”, an investment bank plays a crucial role in weighting the tradeoffsbetween various vehicles used to raise capital, such as private placements, public offerings, debtofferings, and variations of these. The investment bank may also advise that a sequence of separate capital raises take place, each using a different vehicle. For example, the investmentbank may advise that an angel investor provide initial funding, followed by some asset basedborrowing, followed by a convertible note, followed by a private placement, followed by a smallnon-listed public offering using a reverse merger, followed by an overseas stock exchangeoffering, followed by larger public offering on a listed U.S. exchange. There are of course amyriad of such strategies and options to consider, with all of their many tradeoffs and costs. Thegoal as always is to raise the right amount of money with reserves at each stage of growth,without losing control of the company or paying excessive interest.Once the advice is given regarding the corporate funding strategy, an investment bank provides awide range of supporting services to enable each fund raise. For a private placement, supportingservices can include:1)

preparing a private placement memorandum;2)

writing or updating the business plan and financials;3)

preparing a subscription agreement and related paperwork required for the investment;4)

advising on the amount and price of units to sell and the amount and price of warrants(right to purchase stock in the future);

Investment Bank Funds Business Growth by Ranni Hillyer

restructuring the company as needed, such as conversion from an LLC to C-Corp, andissuing the desired number of new shares;6)

creating or updating investor-targetted promotional materials such as websites, pressreleases, corporate backgrounder, investor kits, and power point presentations;7)

advising on all the factors that can increase the appeal to investors, such as insurance,intellectual property, boards of advisors and directors, and so on;8)

finding ways to minimize or explain unfavorable facts in the company’s past;9)

planning and coordinating presentations to investors and investment advisors at venuessuch as conferences, and investor luncheons (roadshows);10)

distributing favorable PR to the investment community; and,11)

setting up or contracting with call centers to contact investors and investment advisorsdirectly on a national basis.Most of the same supporting services are available for public offerings, and in addition publicofferings require services such as:1)

arranging a reverse merger to speed up the process and reduce the cost;2)

preparation of a prospectus;3)

arranging for audited financials and Sarbanes-Oxley compliance;4)

registration with the SEC;5)

coordinating the whole underwriting process.The services required for public and private placement will be covered in greater depth in aseparate article.Earlier, I alluded to the beneficial practice of calling on investment advisors in order to findinvestors for a private placement or public offering. A well-positioned boutique investmentbank, such as Aero Financial, has built up sufficient credibility to be able to make thesepresentations and get a response. Why is this so useful? There are over 40,000 licensedinvestment advisors in the U.S. alone. These include Registered Investment Advisors, CharteredFinancial Planners, as well as series 7 licensed investment brokers. These advisors generallyhave the ear of their investor clients.

The investment advisors are the gatekeepers to the wealthof the country and the world.

Many advisors agree that clients’ interests are served by allocatinga portion of their clients’ assets into emerging growth companies. With the right message abouta public or private offering, the advisors are in an excellent position to communicate anopportunity to selected clients.

A boutique investment firm with the right experience and contacts among advisors can introduce these opportunities to investment advisors.

Presenting investment opportunities to investment advisors is far more efficient than callinginvestors directly. Here’s why. Each advisor may manage a book of dozens to hundreds of clients, with a few million to a few billion dollars of investor funds under management. Equallyimportant, the advisor knows in advance the investment goals of each client.

Therefore, acompetent presentation to one advisor reaches in effect dozens to hundreds of pre-qualified clients in a single stroke.

In addition, advisors frequently gather together in places whereinvestment opportunities are presented. So to gain further efficiency, presentations can be madeat advisor conferences, advisor office meetings, group luncheons and advisor conference calls. If there are 100 advisors present at a conference, and each on the average can reach 20 qualified

of 00

Investment Bank Funds Corporate Growth

Download or Print

587 Reads

Info and Rating

Category:	Government Docs
Rating:	(1 Rating)
Upload Date:	03/01/2009
Copyright:	Attribution Non-commercial
Tags:	wills and trusts the investment banking industry venture capital firms wills and trusts the investment banking industry venture capital firms (fewer)