INVESTMENT BANKERS ARE NOT VENTURE CAPITALISTS

There is a rather silly notion that–more often than not–stems from ignorance related to private, corporate investments.

That is, nearly all investment funds (private equity, venture capital, family office) and investment bankers fall within the same bucket. News flash: Investment bankers are not venture capitalists OR private equity investors.

Very few middle-market investment banks invest using their own funds. Very few have their own investment vehicles and, when they do, they typically are less inclined toward early-stage venture capital deals. Most private equity funds are interested in risk-sheltered, boring deals in steady-state sectors. Valuations, business models, and investor types are all differentiating factors between investment bankers and venture capitalists. Here we will discuss some of these in more detail.

For More Information on Investment Banking Services , Stay tuned with AlcorMNA!

BUSINESS VALUATIONS

There is a difference between a venture capital valuation and a valuation for M&A. One often bases assumption on forward-looking potential, while the other uses historical performance. VCs use pre and post-money as the basis for the “valuation” while the other looks at some multiple of the historical cash-flows, typically based on industry comparables. Both play the diversification game very differently and therefore treat business valuations very differently as well.

Venture capitalists want the lowest valuation with the lowest amount of capital infused for the associated risk–except in cases when they need to place funds and they have the opportunity to feed a unicorn.

Investment bankers are apt to push for the greatest amount of capital input and the highest valuations possible. Their commissions move in-step with both of those metrics. In fact, when investment bankers do work with venture capitalists on behalf of a client, they are typically at odds with them. There are some venture capital firms that refuse to pay the fees of intermediaries. It’s a picky mentality, that is not exclusively the curse of venture capitalists, but had among private equity firms as well.

ADVISING IS NOT INVESTING

In the valuation differences discussion above, we are speaking as though the investment bank itself directly invests in deals. While many investment banks have their own investing funds, most in the middle-market investment banking firms do not directly invest. They are typically the connecting link between buyers/investors and the issuers/sellers. They advise clients on the nuances of capital transactions (e.g. buy-side M&A, sell-side M&A and debt/equity capital infusions). They are not fiduciaries of investor funds. They do not have a investment “thesis” or “mandate.” Most are brokers and intermediaries, advising clients on their own transaction(s) with capital sources, they are not investors themselves.

Bulge-bracket banks differ here, but the general advise or invest rule holds true for most in the mid-market.

Are you looking for a Corporate Finance? Complete the Enquiry Form!

APPLYING FILTERS

Fewer investment bankers work with startups than do venture capitalists. Most bankers like to see substantial revenues (again, the bigger, the better). Why? This is how investment bankers ensure they are able to truly take both front-end and back-end fees for the work they do. That’s not to say investment bankers are more picky than venture capitalists. Both rightly apply stringent filters on potential deals. They simply have different filters to keep out the riff-raff. As you might imagine, we receive an inordinate number of capital raise requests. So many, in fact, that I have automation email chains set up using appropriate tags as the trigger in our marketing automation and CRM system. The tag I regularly use is #RaiseCapital.

Both investment bankers and venture capitalists will put off phone calls, NDAs and “presentations” from companies until they know whether or not there is real meat on the bone or potential proof in the pudding. Such filters should be expected. If a company is unwilling to jump through the hoops, then they become one of the many self-filtered deals.

WHAT WE ARE AND WHAT WE ARE NOT

Investment bankers are advisors, intermediaries, and brokers. They are rarely active direct investors, venture capitalists, private equity investors. If an investment bank invests directly, they typical do so through investment vehicles run by separate teams than those who manage the processes of their capital transactions.

The perfect example of “what not to do” comes from a request we had this week. The message included name, email, phone and location with the following text: “Need a loan.”

In the regulated financial services world, investment bankers are required to following “Know Your Customer” or KYC rules, so as not to provide investing advice to products unsuited for various investor types. While I would not assume the same scrutiny would be applied to company issuers looking to transact in some way, it would be very helpful if issuers applied some form of “Know Your Investor” principals to their outreach.

The more you know, the less you will look foolish and the more likely you will be to get a deal done with the right investor group. In fact, that’s the reason most companies hire an investment banker in the first place.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of Investment Banking, Corporate Financing, M&A advisory, Joint Venture Advisory, Private Equity, Debt Financing  and  International Business Development.  These Services leverages insights,  relationships and a culture that emphasizes a strong orientation towards excellence.

For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.  

www.alcormna.com

ALCORs Growth Solutions for Business Helps Corporate Companies in the Areas of Investment Banking, M&A, Private Equity and Corporate Finance.

ALCOR provides a one-stop solution in Investment Banking with world-class corporations and companies as its clientele. ALCOR expertise spans the spectrum of finance - Mergers & Acquisitions, Equity Financing, Debt Financing, ECB, Financial restructuring, and investment banking advisory. ALCOR has footprints across the globe and an extensive presence in India with over 48 regional offices. ALCOR serves a wide cross-section of verticals, some of which are the following: Automotive, Power, Telecom, Electronics, Software, Real Estate, and Education.

For More Information on Our Services, Stay tuned with AlcorMNA!

True to its global stature as a leader, ALCOR's business philosophy is driven by highest levels of integrity and honesty at the heart of business. ALCOR obeys and complies with the rules of the land. ALCOR’s erudite Directors are from Harvard, Oxford and other prestigious institutions. The execution Team comprises of internationally reputed and highly experienced finance personnel.

ALCOR leverages its strong global footprint and the value of its international board of advisors to provide its clients with high growth transactions across the globe. We use our international deal-making experience to deliver customized advice to clients on each transaction. We assist clients in evaluating international and domestic Acquisitions and Joint Ventures. Global Fortune 500 companies work with ALCOR to assess suitable targets across the globe for market entry or market share expansion. ALCOR solutions include Mergers & Acquisitions, sell side, & buy side advisory, leveraged buyouts & other types of corporate restructuring. Standing aloft with over a 100 man-years in cross-border M&A advisory & independent research & experience, ALCOR, delivers maximum value from their transactions. ALCOR understands the clients' unique business needs, keeping their objectives a top priority. We work with our clients closely, often over five years, to help the client realize the value of their value creation strategy. ALCOR's wide range of product offerings are tailor-made to suit client growth requirements

Are you looking for a Corporate Finance? Complete the Enquiry Form! 

ALCOR worldwide team allows for targeted search, scenario mapping, synergy realization, and detailed road map with experience-driven cross-border M&A advisory that can be customized with minority buy-in, acquisitions, or even a 50:50 joint venture.

ALCOR uses strategic tools such as the Balanced Scorecard with tailored precision to define the following -

• Core defense
• Global customer revenue model
• Strategic high growth market entry.
• 360-degree growth model
• Intangible value proposition .Core foundation pillars
• Evolved value chain integration.Low cost global value partnerships and several other strategies.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of M&A advisory, Joint Venture Advisory, Financial Advisory,  Private Equity, Debt Financing  and International Business Development. These services leverages insights, relationships and a culture that emphasizes a strong orientation towards excellence.

For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.

www.alcormna.com

MEZZANINE FINANCING OPTIONS

Mezzanine financing has created opportunities for investors to secure cheaper alternatives to fund companies. The purpose of the article is to present an overview of mezzanine financing and discuss the various features of the debt. Included in the article is a discussion of the benefits associated with mezzanine financing as well as the risk and implications of incorporating mezzanine financing in a company’s capital structure.

CHARACTERISTICS

Mezzanine financing, also referred to as quasi-equity, comprises of both unsecured debt or second lien debt and has debt and equity characteristics. Mezzanine financing is a type of loan that is subordinated to the senior debt in a firm’s capital structure but is above the common stock or preferred equity. This form of debt can take the form of senior subordinated debt, convertible preferred debentures or as preferred equity. Such loans are frequently used for financing acquisitions or fuelling the fire with needed non-dilutive growth capital. Within a capital structure, it is junior to all debt. Mezzanine debt has a higher interest rate since the risk exposure is more than that of senior debt.
  

For More Information on Our Services, Stay tuned with AlcorMNA!

The yields of mezzanine financing are the highest in the bond market and are riskier compared to senior debt. Mezzanine debt financing is usually based on covenant packages such as bank facility covenants or high-yield style covenants. The bank facility covenant often has maintenance covenants and is mostly based on the credit facility’s covenants. High yield covenants, on the other hand, can shield a bondholder from unfavorable actions by equity owners and safeguard a bond’s priority of claims.

Mezzanine debt that is similar to high yield debt has components such as optional redemption and call protection provisions that are comparable to high-yield notes. Similarly, mezzanine debt that includes some components of senior debt has mandatory prepayments secured to debt and optional prepayments at par, at low or decreasing premiums. For example, some mezzanine notes can be redeemed at 105% of their principal amount in the first year following the note issuance, 104% in the second year, 103% in the third year and 102% in the fourth year.

Are you looking for a Corporate Finance? Complete the Enquiry Form! 

BENEFITS OF Mezzanine financing

·      Mezzanine financing is valuable in the capital structure of a company. For example, the equity capital of a company is strengthened with mezzanine financing since equity holdings are not diluted.

·      Mezzanine financing also enhances the structure and creditworthiness of a company and has a positive impact on a company’s rating.

·   Like equity financing, mezzanine financing does not need collateral, thereby, companies have the flexibility to use capital to expand and to manage the operations of the company.

·         The use of mezzanine debt reduces the amount of equity invested in a company and lowers the after-tax cost of capital.  Additionally, the value of stocks held by current shareholders increases when mezzanine financing is integrated in the company’s capital structure.

·         In general, companies that use mezzanine financing have the flexibility to structure covenants, amortization and coupons to adjust and cover exclusive cash flow requirements. 

·         Mezzanine investors benefit from mezzanine financing as it generates higher rates of return. Investors also obtain steady returns from mezzanine funding due to contractual agreements to make interest payments.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of Investment Banking, Corporate Financing, M&A advisory, Joint Venture Advisory, Private Equity, Debt Financing  and  International Business Development.  These Services leverages insights,  relationships and a culture that emphasizes a strong orientation towards excellence.

 For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.  

www.alcormna.com

M & A Advisor vs. Investment Banker vs. Business Broker: What’s the Difference?

M&A Advisors

M&A advisors and investment bankers are similar in their offerings, though there are certainly some differences. M&A advisors bridge the transaction market gap between the smaller businesses that are sold by business brokers. The larger transactions typically take on a more complex structure and the regulatory bodies require the servicing professionals to carry certain licenses. However, depending on the transaction structure, some lower middle market transactions do not require the advisor to be licensed under the securities laws. You will find that most M&A advisors are not licensed. This is very much a grey area and subject interpretation of certain foggy facts that will hopefully be addressed by the SEC and Congress in the months to come. If not carefully navigated this can create additional transaction risk to both the advisor and the transacting parties.

For More Information on Corporate Financial Services, Stay tuned with AlcorMNA!

Investment Bankers

Investment bankers typically offer a broader range of services and work with larger companies; however, in the last 5 to 10 years it is more common to see investment banking firms servicing clients in the middle market. Investment banks provide several services that business brokers do not. Some of these services include: fairness opinions, public offerings, a much broader line of financial services, etc. These require formal licensing as a broker-dealer. Additionally, investment banks are usually staffed with various professionals that provide a wider range of experience, licenses, and other certifications. The depth of experience and wide array in skill set allows the bank to handle more complex transactions and provide these technical services.

Business Brokers

Business brokers typically serve smaller companies that will likely sell to an individual buyer (vs. a corporate or institutional buyer). The types of businesses they usually service are hair salons, franchises, gas stations, dry cleaners, convenience stores, small service businesses, single location restaurants, etc. The professional agreement terms that are used are very similar to selling a house. It is rare that a business broker will charge an upfront fee. However, it is very common that they will require that the preparation of marketing materials and historical and forecasted financials be all done by the business owner. If you are a buyer, you should know that most, if not all, the preparation is done by the seller. This creates a much bigger transaction risk for both the buyer and seller – it is more likely that the books will not be prepared in agreement with GAAP accounting standards and/or it is highly unlikely that they are audited financials. The typical transaction is the sale of the company’s assets using a template or standard legal forms. These forms often omit key sections that minimize post-transaction liabilities.

Are you looking for a Financing Options? Complete the Enquiry Form!

How Does the Term ‘M&A Advisor’ Compare to The Term ‘Business Broker’?

One of the primary distinctions between the popular use of the term ‘business broker’ compared to the term ‘M&A Advisor’ is the fact that business brokers are often licensed real estate brokers. In my experience, M&A Advisors almost never have real estate brokerage licenses. Many main street transactions include the property on which the business is based. The owners usually want to sell the business and the property together. If an M&A Advisor is involved in a transaction that includes a real estate component, they would usually separately engage a real estate agent to facilitate the real estate portion of the transaction – even if both are being sold to the same buyer

How M&A Advisors and Investment Bankers Are Similar?

Both Investment Bankers and M&A advisors run a proactive process to sell a company that is structured and usually focused on creating a competitive and timed market for the seller with the goal of optimizing the value and reaching the seller’s objectives. As mentioned before, the process a business broker takes is much more passive. The proactively managed process of M&A advisors and investment bankers tend to add a lot more value. Investment bankers and M&A advisors typically buy and sell companies to/for institutional companies, family offices, other mid to large size companies, private equity funds and occasionally the high wealth individual. The transactions at this size and stage of the market tend to be much more complex. The required level of sophistication, deal experience, and understanding in corporate finance is not found at the lower-end of the spectrum. It is often that these professional provide non-transactional value. In many cases, these groups have worked with companies in similar industries or comparable sizes. They have seen common challenges and growth strategies that work. A polished professional may enlighten management with operational changes that could improve the company prior to a sale.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of M&A advisory, Joint Venture Advisory, Financial Advisory, Private Equity,  Debt Financing and International Business Development. These Services leverages insights,   relationships and a culture that emphasizes a strong orientation towards excellence.

For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.  

  

http://www.alcormna.com

Private Equity & Growth Capital A Growing Opportunity

Growing capital investment is showcasing a diverse set of challenges as well as opportunities to private equity investors. Not all investors are interested or active in the investment but those who are can and will seek capital investments which have matured quite often from the Venture Capital growth cycle and can be on the edge of getting positive EBITDA, but for maximizing the growth opportunities furthermore, investment is needed. Private equity might shy away from those opportunities which might turn out to be cash burning shortly. The reason behind this that there is little appetite for constant responsibility to finance general working capital and cash needs or else for investing significantly where there is less future dilution risk.

For More Information on Financial Services, Stay tuned with AlcorMNA!

However, it's not the case that private equity desires a business that is free from capital necessities, with the non-public equity investor’s investment because it is going to be in the ancient acquisition. In most of the cases, bound funds can sure as shooting address the mercantilism shareholders of any undefeated business; abundant of the investment is also new cash for the company. For a typical growth capital investment, non-public equity is going to be searching for a business with a transparent set up modeling out any capital necessities. These are also vital in quantum, however, can typically get to be restricted and specific, and even the uses of such capital can nearly always be targeted on generating substantial EBITDA growth throughout the investment amount. Typical examples embody strategic funding acquisitions, international growth, and entry into new markets, the redoubled capability to attain a vital mass and further development.

Private Equity Structures Featuring Growth Capital Investments

An interesting trend within the market has seen company entities adopt personal equity-style structures to secure critical assets within the growth capital area. These tend to be assets that the capitalist doesn't need to miss out on, however wherever the founder believes that the business has far more growth potential that he or she desires to deliver and earn the good thing about through preserved share possession. These deals so have several of the options of a subsequent acquisition, together with from an ad, legal and tax perspective.

Are you looking for a Financing Options? Complete the Enquiry Form! 

Many growth capital investee corporations can merely not be as prepared for the necessities of AN institutional capitalist when put next with a lot of prime acquisition candidates. This is often the case in a very variety of areas (which are equally relevant to minority investments). It's unlikely that any shareowner debt may be repaired throughout the first years of the investment. Thus loan note interest can typically roll up and sure compound (this in itself can, after all, have its impact on the real equity worth of the business going forward; this can get to be modelled carefully).

There are, of course, a variety of critical variations from the fact that the investment is from a trade customer as against from personal equity. These embody the actual fact that there'll possibly be no sale of the investee business or alternative exit on the horizon for the trade customer through that founders and managers will realize that in progress investments. Associated with this, is that the importance of the founding father of liquidity within the future and his interest not losing worth as a result of the long run capital needs of the business. This results in elaborate negotiations and agreements in such transactions for liquidity opportunities, valuation methodologies and agreement principles regarding the shape and impact of any future capital needs.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of M&A advisory, Joint Venture Advisory, Financial Advisory,  Private Equity,  Debt Financing  and International Business Development. These services leverages insights, relationships and a culture that emphasizes a strong orientation towards excellence.

For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.  

                                                                   http://www.alcormna.com

ALCOR MNA Provides SME Fund as one of the Funding Options to Raise Capital for Your Business

ALCOR’s SME Fund invests in new or existing SME companies in emerging markets to fund seed capital or growth capital in the range of USD 250,000 to USD 10 Million.

Raising seed capital for a start-up company is challenging. Many seed funds are affiliated with a technology or an innovation, however, we at ALCOR understand the requirement of new technology or process in today’s contemporary world and potential revenues coupled with higher value returns. For leveraging the opportunity, ALCOR normally provides early capital ranging from USD 250,000 to USD 2 Million where a gestation period is 12 to 18 months.For well-established companies, ALCOR provides a tailored funding plan specifically designed to suit the client’s needs. We will work closely with the management team for several weeks to review the business plan and the strategic capital funding approach. ALCOR will provide the most advantageous deal and valuation for the investment offer and help the company grow multifold.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of M&A advisory, Joint Venture Advisory, Financial Advisory,  Private Equity, Debt Financing  and International Business Development. These services leverages insights, relationships and a culture that emphasizes a strong orientation towards excellence.

For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.

www.alcormna.com

First-Time Venture Capital Funds See Strong Performance

Venture capital* fundraising has seen a slight slowdown in in the first three quarters of 2017 when compared to the same period last year. However, first-time venture capital funds represent a larger proportion of total fundraising compared to last year. As at September 2017, first-time venture capital vehicles represented 31% of all venture capital funds closed, compared to 25% in the same period last year. Additionally, the number of first-time funds in market has increased from 470 as at September 2016, to more than 590 in September 2017. Despite the many obstacles that emerging fund managers face, first-time venture capital funds of vintage 2010 or older have generated substantially higher median returns than vehicles run by experienced managers. In fact, first-time venture capital funds of all vintage years between 2006 and 2014, except for 2008 and 2009, have outperformed non-first-time funds.

For More Information on Our Services, Stay tuned with AlcorMNA!

Key First-Time Venture Capital Facts:

• As at September 2017, there are more than 590 first-time venture capital funds raising capital, up from 470 this time last year. By contrast, there are 900 successor vehicles currently in market.

• The first three quarters of 2017 saw 114 first-time venture capital funds close, which represented over 31% of all venture capital vehicles which saw a close, compared to 25% in the same period last year.

• First-time managers generally outperform experienced venture capital managers. The median net IRR for 2006-2014 vintage first-time venture capital funds is 12.9%, compared to 9.9% for experienced managers.

• On average, first-time vehicles outperformed non-first-time funds with vintage years from 2011 to 2014. In fact, first-time funds with vintage year 2014 have a median IRR of 21.5%, while non-first-time funds have a median IRR of just 7.8%.

• However, first-time funds are riskier: while first-time funds have a standard deviation of 19.1%, vehicles raised by experienced managers have a standard deviation of 15.6%.

• Although the greatest proportion of venture capital investors which have active first-time mandates are based in North America, the region has seen a drop in the proportion of such investors from 51% in 2016 to 40% in 2017.

• By contrast, Europe has seen an increase in the proportion of venture capital investors with first-time mandates from 26% in September 2016 to 32% in September 2017.

Are you looking for a Corporate Finance? Complete the Enquiry Form! 

 “Launching a debut venture capital fund is a daunting prospect. In recent years the fundraising market has become increasingly crowded, and first-time fund managers are often competing with established firms which have built up their performance track record and can rely on pre-existing networks of investors. As such, debut fund managers have to be careful in how they position their fund’s strategy and scope, as well as how they approach and market to investors. Many investors remain less receptive to first-time funds, concerned that without an established track record they cannot commit to a vehicle.

However, there are indications that these reservations are being overcome, and that investors are warming to investing with emerging firms. This may be in part because first-time funds have consistently outperformed their experienced peers in almost every recent vintage year, offering investors outsized returns. The key challenge is in overcoming the legitimate concerns about the wide dispersal of performance, and convincing prospective investors to commit without requiring a previous track record.”

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of M&A advisory, Joint Venture Advisory, Financial Advisory,  Private Equity, Debt Financing  and International Business Development. These services leverages insights, relationships and a culture that emphasizes a strong orientation towards excellence.

For additional information on how ALCOR MNA can help you Grow your Company, Complete the Enquiry form One of our representatives will contact you within one business day.

www.alcormna.com