Private Equity

Adcapital AG Amb Private EQ.PTNS. Brantley Capital

Capestar Growth Investments Limited Cycad Financial Olicom A/s

Onelogix Group Ltd Trustcapital Partners Societe Anonyme

Guide to Private Equity Offerings

Raising capital can be a CEO's biggest challenge
By Elaine Grant

Well after you've tapped out the credit cards to get started and become a profitable company — but long before visions of IPOs should begin dancing in your head — you're likely to need a serious infusion of funds to get your company to the next level. It's in this post-bootstrapping phase that private equity begins to sound like a good idea. Strictly defined, a private-equity offering, also called a private placement, is a later-stage financing tactic through which you sell equity in your firm to a private or institutional investor. Under this strict definition, you would have already received seed money in the form of angel financing and perhaps venture capital (VC). Private equity investors are assumed to be more patient than VCs. But a widely accepted connotation is broader than that, encompassing many forms of private capital, from angels who provide as little as $250,000 to VCs to institutional investors. Raising private capital can provide a number of benefits, including:

1. The obvious — the funds you need to grow your business
2. Partners who can bring management expertise to your board
3. Connections with other portfolio companies that can help you in a myriad of ways
4. A reason to develop a clear exit strategy through acquisition or an IPO and preparation for that exit

Action Steps

The best contacts and resources to help you get it done

Learn the ins and outs Private equity is such a complex, nuanced enterprise that if you want to make a good deal, you must drill down into the details and understand what you're getting into.

I recommend:  If you read nothing else, read Private Capital Survival Guide.

Subscribe to a directory There are several directories, though not cheap, of all manner of private equity firms.

I recommend:  For free listings of private equity firms, visit PrivateEquity.com. Or check out Private Equity Info, which has one of the least expensive options around — it starts at $85 for a one-month subscription and offers a free demo of its online database, which you can search by industry, location and other key terms. Or try NVST's Capital Motion, a hybrid program that helps entrepreneurs present their companies to the private capital marketplace and allows you to search a private equity directory.

Get connected Cold-calling venture capitalists and institutional investors may leave you, well, cold. It's best to get an introduction; one of the most tried-and-true ways to do so is to hire an investment banker, who will help you prepare your 'book,' which you'll use to present your business to investors.

I recommend:  PrivateEquity.com has a good list of investment banks, or check Google's list of investment banks. Or try an intermediary, an organization that links businesses with investors, such as consultancy Regulation D Resources.

Try the government Believe it or not, federal and/or state government sources may be willing to invest in your business, especially if you can show that by doing so they'll help you create jobs in areas that need economic development.

I recommend:  Seek early stage funds from a Small Business Investment Company (SBIC). SBICs are public/private partnerships between a private investment firm and the Small Business Administration (SBA). SBICs provide equity financing, loans and management assistance. Get info on SBICs from the SBA or the National Association of Small Business Investment Companies' (NASBIC). To find an SBIC in your area or industry, search the NASBIC database.

Tips & Tactics

Helpful advice for making the most of this Guide

• Look for money long before you need it. You'll attract better partners and more funds if you're not desperate — not to mention getting better terms.
• In a presentation to investors, focus at least as much on risk and how you'll manage it as you do on your company's fabulous potential. Investors care deeply about risk.
• Raise enough capital. Rather than raising just enough to get to the next round, go further. Murphy's Law always applies in business forecasting, and it may take you longer than you think to reach that next level.
• Prepare early investors for the later dilution of their investments. Ask, 'Wouldn't you rather have a 20 percent stake in $500 million than a 50 percent stake in $100 million?'