New Zealand has a wealth of private businesses across all sectors; businesses with the skill and capability to employ people and grow our economy. Whilst they provide inspiring innovation, talent and passion, the common constraint to strong sustainable growth is capital. It’s a perennial headache for owners and founders who want to grow their businesses.
The “Growing Capital Markets 2029” report, commissioned by NZX and the FMA, recognised the problem. One of the key recommendations was to ‘grow the private capital ecosystem in New Zealand’.
Fortunately, there has been strong growth in the allocation of investor funds towards private markets over the past 25 years - locally and internationally. The last 2-3 years have also seen the intersection of increased interest in private markets, more innovative financial products and an increasing appetite for capital.
Despite these encouraging trends, business owners seeking capital have a task ahead of them, eased only by a good dose of commercial and marketing knowledge.
Here are our answers to some frequently asked questions.
What capital raising options do I have? - Analyse the options
There are a variety of capital solutions to consider, ranging from bank or non-bank debt to equity investment. Within these options, there are further considerations to fine tune the financing - capital or convertible notes. Other solutions could be sale and leaseback of fixed assets.
Faced with a variety of capital instruments available, there will be a number of factors to think about when assessing how best to fund your business:
- Current capital structure (which may restrict access to debt for example)
- How much funding is required
- Terms of the investment e.g. Control or loss of control, board representation or management input or other strategic impacts such as strategic investor wanting exclusivity
- Valuation. Dilution of ownership
- Access to Smart Capital – help each other's business grow
- Administration and investor relations
- Costs - advisory
How do I prepare for capital raising? - Maximising success
A capital-raising campaign is a project unto itself. Getting the most out of it will require time and expertise. A campaign can last from a couple of weeks to a number of months so engaging with an adviser or intermediary is recommended. Resist the temptation to take it all on yourself and choose to surround yourself with a team of experts. Having the right expertise may seem costly upfront but it’s generally more efficient and effective, not least that it leaves you to put your energy and expertise where it is most needed - on running and leading your business.
A typical campaign mistake is not having the urgency or resources to quickly follow up on leads, or not knowing how to activate your campaign and ensure it gets the appropriate reach. A suitable advisor can not only provide strategic advice on the raise but also efficiently follow up on interest and leads.
As with many things, preparation is key - ensure you are investor ready. In the competition for capital, you need to deliver clear and consistent messaging. Your working documents need to be bulletproof in order to convince others of your credibility, and that your journey to success is well-mapped.
How do I access investors? - Investor behaviour
In this digital era, what technology has offered both the investor and capital raiser is accessibility. Communities of investors that were once operating in silos can now be bridged creating a decentralised private market. For the business seeking capital, this creates a pool of investors that is wider and deeper than ever before.
Investors are increasingly choosing to invest directly with issuers, they are searching online and are more open to interesting and alternative opportunities. The capital raiser needs to align with the technology in order to meet this investor behaviour and appetite. Investors are also favouring marketplaces that promote greater transparency, price discovery and liquidity. A listing in that environment will be a more attractive prospect.
How do I make my campaign stand out? - Be competitive
“How can I exit?” is one of the frequently asked questions by potential investors. If you have a liquidity mechanism in place then you have an answer for this question every time. Liquidity can come in different forms but essentially giving your investors this functionality will put you ahead of your competitors.
Liquidity not only attracts new investors but becomes an essential tool for companies wanting to remain attractive to their shareholders and/or open up a previously ‘closed’ fund to new investors. When businesses are ready to prioritise liquidity they need solutions that suit their needs. Syndex has these options.