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More About This Textbook
Overview
praise for The Handbook of Financing Growth
"Provides an exceptional primer for anyone seeking to understand how to finance a growing organization . . . useful for the entrepreneur, student, or financial professional. Delineates the many sources a growing company can tap to obtain financing—and shows the reader in clear, concise language how to go about it. One of the best books on the subject of finance I have read."
—Barry D. Yelton, Senior Vice President, Business Alliance Capital Corp.
"A tremendous tool for creatively growing your company. This book covers the waterfront of financing options and makes sure the business owner knows how to get a deal done and do battle with any bank or private equity investor to get the best terms."
—Rick Rickertsen, Managing Partner, Pine Creek Partners and author of Buyout: The Insider's Guide to Buying Your Own Company
"Wow! This is the book I needed a few years ago when searching for funding options for my own company. The authors have covered everything here: all types of debt and equity funding, plus the process to follow to find the right funding source for your company's circumstances. This handbook should be on every entrepreneur's bookshelf !"
—Peter Pflasterer, entrepreneur, founder, JPS Communications
"An excellent resource and must-have for anyone looking into how they should capitalize their company. It not only provides the basics of how to get a financing plan in place, but also goes a step further by explaining how companies get funded in the real world. No single resource has been able to bridge the gap between emerging growth and middle-market companies being overlooked by investment banks until now. Marks et al. have encapsulated a lifetime of financing knowledge in a single text. I recommend it to any middle-market company seeking capital."
— Christopher W. Gaertner, CFA, Managing Director, Head of Global Software Investment Banking, Global Technology Group, Lehman Brothers
"Having known the authors personally for many years, I couldn't think of a better collection of people with practical knowledge of how to finance a company. Since every growth company is in a constant search for capital, every one of them ought to own this book."
—Mitch Mumma, Managing General Partner, Intersouth Partners
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Meet the Author
KENNETH H. MARKS is President of an emerging growth subsidiary of the Raytheon Company, and Managing Director of Marks & Company Inc. (www.marksandcompany.com), which provides strategic advisory and corporate development services. Mr. Marks has been involved as management, advisor, and board member with over a dozen emerging growth and middle-market companies. He is a member of the Young Presidents Organization (YPO), the founding YPO Sponsor of the Young Entrepreneurs Organization (YEO), RTP, NC, as well as a member of the Council for Entrepreneurial Development, and the Association for Corporate Growth. He created and teaches "Managing Emerging Growth Companies," an MBA elective at the Hult International Business School in Boston. Mr. Marks obtained his MBA from The University of North Carolina at Chapel Hill.
LARRY E. ROBBINS is a founding partner of Wyrick Robbins Yates & Ponton LLP, a premier law firm in North Carolina. Mr. Robbins is a frequent lecturer on the topics of venture capital and corporate finance. He serves on the boards of directors of entrepreneurial support organizations, technology trade associations, and charitable and arts organizations, and received his BA, MBA, and JD from The University of North Carolina at Chapel Hill. Mr. Robbins was also a Morehead Scholar at UNC.
GONZALO FERNÁNDEZ is a retired vice president and controller of ITT's telecom business in North Carolina. Subsequent to that, he spent fifteen years working as a finance executive for emerging growth companies. He is a past president of the Raleigh Chapter of the Institute of Management Accountants. He received his BA in accounting from Havana University, Cuba, and authored Estados Financieros (Financial Statements).
JOHN P.FUNKHOUSER has been a partner with two venture capital funds, and has operated as chief executive officer of four companies in a variety of industries, from retail to high technology. Mr. Funkhouser worked in commercial banking with Chemical Bank of New York, in investment banking with Wheat First Securities, and in venture capital with Hillcrest Group. He has an undergraduate degree from Princeton University and an MBA from the University of Virginia, Darden Graduate School of Business Administration.
Read an Excerpt
The Handbook of Financing Growth
By Kenneth H. Marks
John Wiley & Sons
ISBN: 0-471-42957-0Chapter One
IntroductionFor emphasis, we want to point out that there is no silver bullet in funding a company. As much as we would like you to believe that every fund-raising follows the same consistent process, it is just not true. However, what we will do is provide a view that is fairly representative of the key steps that need to be considered and how to navigate the process. In practice you will find that some steps are conducted concurrently with others, and some steps are conducted rather informally. What we have attempted to do is explicitly show the key steps and provide guidance for each. With that said, Figure 1.1 provides an overview of the financing process from the perspective of the issuer and is comprehensive in that it indicates the steps for raising equity; debt placement will be a subset of this process depending on the transaction type. In many instances you will see the word investor used interchangeably for either an actual investor or a lender; the line of distinction blurs depending on the characteristics of the deal. We have chosen to segment the process into the following categories for discussion. You'll note that this is also the organization of Part One of this handbook.
* Business Performance and Strategy.
* Valuation.
* Capital Structure.
* Sources of Capital.
* Equity and Debt Financings.
* Expert Support.
* Closingthe Deal.
Steps 1 through 3 allow us to obtain a view of the current business and management's plans. In step 1 we review the business plan, strategic initiatives, and shareholder goals and objectives. Step 2 is an analytical review of the current financial position of the company. In step 3 we seek to understand the forecasted performance of the company and the underlying assumptions. Combined, we should be able to define and understand:
* The financial position of the company.
* The structure of the current balance sheet.
* The specific use of funds.
* What industry the company operates in.
* The stage of the company.
* The shareholder objectives.
* Management's strengths and weaknesses.
* Management's plans and view of the future.
In many instances shareholder objectives are not well articulated and need clarification, particularly as they relate to funding the business. Given that the focus of this book is start-up through middle-market (revenues up to $500 million) companies, many shareholders are also senior managers of the company. Typical objectives include: (1) addressing personal risk management issues while growing the business and (2) shareholder liquidity. These two topics have significant impact in answering the classic questions "What is the right mix of debt and equity?" and "How do I avoid personally guaranteeing the company's debt?" It is critical to understand these issues early in the process.
Steps 4 through 6 focus on comparing the company to its peers and determining variances. Once base information is collected regarding the industry, the stage is set for a discussion with management about the realism and ranges of potential outcomes, and why they may vary compared to other similar businesses. This discussion should result in the ability to analyze multiple scenarios and determine the variability (risk) in achieving management's forecast. In step 7 we update the assumptions and agree on the financial forecast that we will use in the fund-raising process.
Step 8 helps to determine a range of valuations for the business as an entity. This is critical in bringing alignment of expectations among shareholders, directors, management, and supporting advisers.
In step 9, we assimilate all of the prior steps into a target capital structure and some fallback scenarios. In steps 10 through 12 we test the market as a reality check and determine the likelihood for success given our chosen strategy. The company is looking for an indication of interest on the part of potential investors/lenders. This may be an iterative process, the downside being the risk of the market perceiving that you are shopping the company. There is a careful balance of having alternative sources versus overexposing the company to potential investors/lenders. If this happens, you may not be taken seriously or may be taken seriously by only the less than optimal sources. In Chapter 7 we address the use of experts in the financing process. They can be invaluable in testing the market and potential alternatives, as well as providing an added perspective.
Once the financing strategy has been solidified and initially tested, a so-called book is created to present the company and solicit formal responses; these are steps 13 and 14. In the event that the funding required is solely debt, and depending on the type of debt, an abbreviated amount of information will be required from a traditional book and then some additional financial detail will be added.
Steps 15 through 17 focus on management's presentation of the company during the financing process. Steps 18 through 22, addressed in Chapter 8, are about negotiating, closing the deal, and managing ongoing investor/lender relationships.
(Continues...)
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