Equity Line Funding - Venture CapitalUseful information and tips regarding: The Standby Equity Purchase Agreement or SEPA is the agreement I draft after discussing the equity line funding needs of the company for raising capital. Once the company agrees on the general terms of funding I prepare a simple term sheet. After discussing the term sheet, mutually agreeable changes are made and the parties sign. These structures that were first used in the United States about ten years ago are now being used in many countries and I can assist you with that funding.
The next step in the process is the drafting of the SEPA. The whole process can move rather quickly and the company can generally beginning drawing down equity line funding in 30 days or less sometimes. The process is actually a bit simpler outside the US and Canada because a registration statement is not required, which can sometimes be a lengthy and costly process. One of the main benefits a company has with an Equity Line Funding structure, over typical private placement funding options is that the company has control over the timing of draw downs. A microcap company's capital raising should be the leaddog. Various terms and conditions can also be used to give the company significant control over the draw downs. Some terms and conditions are:
- the company controls when the funding request is given (which can only be given by the company); Some companies use a Standby Equity Purchase Agreement for equity line funding to have it in place when they need capital so it is always available. Typical equity line funding is for a term of three years, but can be shorter or longer depending upon the agreement of the parties. Raising capital through an equity line is sometimes preferred by companies over a toxic convertible because the company can exercise more control. Hedge Funds usually invest in public companies, but more and more are investing in private companies and taking them public through Reverse Mergers or Direct Public Offerings. Reverse Mergers also called Reverse Take Overs are done in many countries such as Germany, United Kingdom, France, Spain, Malaysia, Singapore, Indonesia, Thailand, Australia and India.
Each year a significant number of private companies enter into a Reverse Merger transaction with a public company that is usually just a shell with no current business operations. Reverse Mergers are when private companies merge into public shell companies to get their stock symbol and become public. This allows them to access the capital markets, and depending on their business model, track record, management team, and other factors, they may be able to raise several million dollars of funding for growth and/or acquisitions. Here is some more information on Reverse Mergers.
Hopefully, the tips and suggestions on this site will give you the leading edge you need when dealing with investors such as Hedge Funds, Angel Investors, Venture Capital Firms and Private Equity Firms. The more information and knowledge you have, the better your chances will be of raising capital and growing your company. Keep in mind that the key to your funding success is RESEARCH and PREPARATION and DETERMINATION. When it comes to meeting with investors, you can never do too much research or be too well prepared. I, ( Joseph LaRocco )have advised numerous clients over the years and counseled them through the capital raising process, a process that is constantly evolving. Once you have attracted interested investors, then begins investor meetings and due diligence. The final steps in the process involve negotiation of the financing structure, reviewing, negotiating and drafting of term sheets, financing documents, corporate documents, employment agreements and lock-up agreements. As I mentioned, the capital raising process is constantly evolving. For instance, not too long ago, private companies primarily relied upon Venture Capital Firms and Angel Investors to raise capital. They were very limited in their options. Now some Hedge Funds are offering favorable terms to private companies. With the flood of money into Hedge Funds, the hybrid hedge fund has evolved. Now, instead of Hedge Funds investing only in publicly traded companies (as well as currencies, futures, commodities, etc.) some have even begun investing in private companies. Now companies have more choices than just focusing on venture capital firms. I hope you find this Site useful and it answers questions you may have or sheds light on some issues you need to consider. In either event, I wish you the best in your quest for capital. Whenever possible I have included case scenarios based on past transactions and provided answers to some questions that you might not have considered. I am periodically adding to and updating this Website so check back often. Joseph LaRocco has represented and advised hedge funds, private and public companies, broker-dealer firms, investment bankers, and high net worth clients. He has advised these clients on numerous funding and financing transactions for public and private companies..
Joseph LaRocco is a Managing Director of Equity Partners Fund SPC (EPF) a segregated portfolio company established under the law of the Cayman Islands. EPF is not a hedge fund and does not take outside investors capital. Its principal funding structure for publicly listed companies is the equity line funding structure.
If you have any Comments on this Website I would be glad to hear from you. If you need some advice regarding negotiating terms with an investor or reviewing funding documentation give me a call, I may even be able to make an introduction to help you obtain funding, especially if it involves equity line funding. Also, if you need help drafting a Term Sheet for interested investors, analyzing a Term Sheet or discussing various Financing Structures give me a call.
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Equity Line Funding - is a funding vehicle being used by listed companies worldwide. I first started using this structure about ten years ago and have greatly simplified my documents over the years, unlike most Hedge Funds that use a very complicated set of documents. If your listed company is looking for funding or listing on the Frankfurt Stock Exchange I would be glad to discuss terms, draw down procedures and funding amount. Give me a call if you (US and non-US listed companies) are looking for short/long term funding.