Many renewable energy project developers seeking investors for their projects or cleantech companies looking for early or growth stage funding hesitate in hiring a specialized investment banking firm to lead the process. How? They wonder, can the RE specialized IB help raise funds and what exactly can they bring to the table? Here are some of the answers.
Download the entire Vienna Conference presentation Download GLC-BCP conference Vienna
First and most importantly, the two words “Investment Bank” send shudders of fear down the spine of most cleantech company owners or developers. Thoughts of huge bills, endless meetings and 20 kilogram reports immediately rush through their heads. “We already put together a business plan”, “we have everything ready” and “our financial guy has put together some great spreadsheets” are the some of the usual, but short sighted replies and are a long shot away from getting close to successfully closing the funding objective.
Specialized boutique investment banks do not carry huge bills and are mostly success oriented although
you should expect some payments for reasonable work done for cleaning up and preparing the road to funding. Below are just some of the advantages in taking this path, they lead to success instead of failure and almost more importantly to a higher valuation or project returns and lower cost of capital.
Is Funding Possible? Why and How do I go about it?
In spite of the current economic turbulence, the author of this article and the firm represented continue to share an enthusiasm and positive outlook for the growth and vitality of the global emerging middle market cleantech companies and projects. And we collectively believe that those companies that are proactive and well positioned and advised, there is likely capital to be found. For those that need help getting their house in order and need to strengthen their position and focus, we hope this article will help and strongly recommend the assistance of a specialized boutique investment bank.
Planning
The figure below depicts the key elements of the planning process. We provide some background here and then transition to the process in the following paragraphs. This treatment of the planning process presumes senior leadership has already established a compelling vision and mission to ensure a solid linkage to the intent or aim of the business. Revisiting these foundational concepts is important with each planning cycle.
In its original sense, strategy (from the Greek word strategos) is a military term that describes the art of the general. It refers to the general's plans for arraying and maneuvering his forces with the goal of defeating an enemy army. Not surprisingly, businesses have embraced this notion of strategy, defining it as a plan for leading, controlling, and utilizing resources for the purpose of promoting and securing the vital interests of the business. Ideally, one seeks (per Michael Porter of Harvard) a broad formula for achieving a competitive edge, "... deliberately choosing a different set of competitive activities which creates a unique and sustainable mix of value .... ". We call this redefining the race, as can be seen later in this article.
With the company vision, mission, and values serving as its foundation, the strategic plan strives to provide the three- to five-year strategic (competitive) initiatives in broad stokes along with the expected value-creation (financial and nonfinancial) outcomes. In contrast, the business plan (or one-year operating plan and budget) links to the strategic plan by outlining the detailed actions underlying the broadly stated strategic initiatives that must take place over the year in order to achieve Year 1 objectives. The key elements of the business plan are mainly functional improvement plans coupled with resource assignments, project milestones, final due dates, and expected benefits against projected costs (capital and expense).
Preparing for the funding process
Typically a startup or developer seeking funding must complete a questionnaire and submit an executive summary or a full business plan. A pro active company will understand the private equity or venture capital investing process. Some groups require that a member meet with the target management and determine if the plan is viable before allowing presenting to the group. Other groups allow the administrative staff and managing director to review the plan and invite the entrepreneur to present without a champion. The questionnaire will typically include the following:
- Name of company.
- Year founded and legal structure (C corporation, S corporation, limited liability company (LLC), etc.].
- Who referred you to this investment group and who is your professional advisor, accountant, lawyer and other consultants?
- Summary of business (in three sentences or less).
- What problem is your product or service solving?
- What is the size of the market, how much has it grown in the past few years, and what is its projected growth?
- Describe the competition (companies as well as substitute products).
- What are your company's competitive advantages?
- Why will your company succeed in the long run?
- Does the company or its founders have any relevant patents or proprietary technologies?
- What is the relevant experience of each member of the management team? Please enclose a one-page resume of each of the key management team members plus an organizational chart.
- What is the company's sales and marketing strategy?
- What are the major short-, medium-, and long-range operational milestones you intend to achieve?
- Complete financial information, historical, 5 year projections or lifetime proforma if it is for a standalone asset based project
- Are 50 percent or more of revenues generated from one or two customers?
- What are the three greatest risks of this venture? How are they eliminated or managed?
- What are the liabilities outstanding other than operational payables and accruals-especially off-balance-sheet items?
- What is your capitalization structure? (How many shares are currently owned by founders and investors? How much capital has been invested so far, and by whom?)
- How much capital are you seeking, and how will this capital be used?
- How many rounds of investment and what amounts do you expect to need in total?
- What is your exit strategy?
The private Equity and Venture Capital Business Model
Understanding the business model and economics behind the venture or private equity fund may help you better understand the motives and actions of the VCs you partner with. We highlight some of the key facets of the VC model:
Young VCs and PEs tend to look at markets and data, experienced VCs tend to look at people.
A typical fund:
- Invests in 10 to 15 companies.
- Expects one company to return the fund or generate enol'gh gains to repay the entire amount of the fund back to the limited p;..Ltners.
- Expects one to four companies to fail.
- Expects the rest of the companies to have minimal to reasonable returns.
- Has a life of 10 years.
- Leverages expertise in certain areas by investing in a portfolio of companies in an industry.
- Invests in stages, based on milestone completion.
Investment banks are financial intermediaries (not investors) that act as an underwriter or agent for corporations raising capital or seeking strategic transactions. Many maintain broker-dealer operations, maintain markets for previously issued securities, provide market analysis, and offer advisory services to investors. Investment banks generally provide advisory services relating to mergers and acquisitions, private equity placements, and corporate restructuring. Some investment banks offer a subset of the services mentioned, particularly the small and niche boutiques. In 2008, many top investment banks added commercial lending services as a response to the tremendous upheaval on Wall Street.
There are several tiers, or levels, of investment banks. The largest are global and often referred to as the , bulge bracket firms. Prior to 2008, these included the likes of Lehman Brothers, Credit Suisse, Merrill Lynch, Citigroup, Morgan Stanley, JPMorgan Chase, Bear Stearns & Co., and Goldman Sachs, as well as the less recognized firms UBS, Barclays Capital (UK), and Deutsche Bank AG. During the credit and subprime mortgage crisis of 2008, Merrill Lynch was purchased by Bank of America; Bear Stearns & Co. was purchased by JPMorgan Chase; Lehman Brothers went bankrupt and its investment banking group became part of Barclays; and Goldman Sachs and Morgan Stanley became bank holding companies.
The second-tier firms are usually regional but sometimes international in nature and have focused operations in a geographic area or in an area of specialty like renewable energy or cleantech. These firms are referred to as boutique firms which specialize in a particular market niches or technologies. Keep in mind that the tier in which an investment bank resides is not necessarily a reflection of the quality of the services offered. A key factor in selecting an investment bank is matching the needs of your company or projects with the focus of the investment bank’s ca abilities and the experience of the team dedicated to your project. There are high quality, strongly performing firms in each tier.
Hello,
We facilitate the provision of independent analysis to support expert testimony, regulatory or legislative engagements.http://www.stlouisbridal.com
Posted by: Hassim567 | November 30, 2011 at 01:55 PM