Continuity of Capital
NorthCrest has 30 years of Capital Markets expertise in Canada in the Buy and Sell sides of the financial sector, and its principal also as a start-up entrepreneur of many new firms.
NorthCrest is very aware of the need to address capital sourcing and financial structure, from the moment new idea is conceived, through seed, angel, friends and family funding through the period known as the funding gap. A start-up has to be able to get proof of commercialization, and early traction in order to attract the next funding from a Series a Venture fund. At that point, the company may decide to examine an early move to the public markets through a specialised RTO called a Capital Pool Company and bypass the VC route. In any case, expansion capital is required from VCs or private equity if the move to the public markets is delayed. Along the way, no doubt a successful company will have strategic buyers offer to buy-out the company. A decision to buy or sell may be impacted by which financial partners are currently on board. NorthCrest can help you analyse your options along each step.
Valuation Continuity Plan
Raising money from friends and family seldom establishes what would be considered institutional grade third party valuation. That interim valuation used for family may, or may not, fit into a model that will support new investors when needed. NorthCrest can assist companies in creating what we call a Valuation Continuity Plan. What this means is looking, as best we can, at your 1 to 5 year financial forecasts, and the timing of funding requirements. Early investors may well want to see the potential exist for a 5x to 10x return. Given the expected future funding requirements and dilution thereof, and the resulting financial ratios of sales and earnings in the future, will the company shares achieve that 5 to 10x return? Furthermore, if you need $3 million more funding in a year’s time, what valuation parameters and targets will those investors be looking for. Will those new investors then be able to buy in at a low enough stock/valuation to support their needs? While going public may not be your goal, one must look at the public markets as a long term valuation comparison. Every early investor will want to buy in at less than public market multiples to offset the implied risk. NorthCrest can help companies avoid an early spike in valuation that may only serve to force a down round on early risk takers in order to accommodate the next rounds of needed capital. We find that Angels, VCs, and the Public Market investors tend to only look at their valuations in their segment of the funding universe instead of looking at how those exit valuations line up, or interface, with incoming valuations needed for the next round.
Capital Markets Education for Family Run Business – Exploring Liquidity Options and Road to Liquidity
NorthCrest can assist managers/owners of family owned business as to what options might exist in the future for achieving some liquidity event, or value crystallization. We have found many owners know their business inside and out, but have few ideas as to how to get value from the business when they want to transition into a less intense lifestyle. We can provide guidance on the options, timelines and prerequisites and also offer options such as using their business as a consolidator of similar businesses so that it can quickly achieve institutional investor interest and valuations/exits. It may also allow the owner to attract professional management to take over their roles. Sometimes, we may find that a new financial partners is brought in to affect the consolidation process.
NorthCrest can offer workshops to go over the plan, and periodic updates thereafter.
NorthCrest can also give guidance to family business owners on how to transition to the next generation.
Education Workshops on Benefits of Introducing New Equity or Debt Partner
Capital Table Workshops
Introducing a new equity partner, or debt player, may better enable the execution of a growth plan. NorthCrest has found many clients need help to figure out how debt or equity would let them achieve growth. New funding could enable the overhaul of needed software systems that fluctuating year-to-year cash flows would not support. Without the overhaul, the company’s long term success could be impacted by a competitor starting a new product with more current technology.
NorthCrest can perform a short term workshop to help a company craft an up-to-date capitalization table of shareholder/stakeholder interests. Such a cap table is the cornerstone for future financing and M&A discussions.
Be prepared for the time a new funder is ready to dig into your files, or an M&A target is offering to take over your company. Insufficient attention to being diligence ready has caused many companies to lose a suitor’s interest. Furthermore, presentation decks made by companies cannot be in conflict with what diligence suggests. Diligence preparation can let NorthCrest identify gaps for a company to attend to In order to be ready.