Best Ways to Bridge Your Digital Transformation Funding Gap

Posted on: December 17th, 2019

Companies seeking faster growth often chart a new course through digitalization. They reinvent themselves with social media, web based e-commerce, and app-based products. While tech-based growth strategies are a great growth idea, they need properly configured underlying resources and systems to take flight.

They key ingredient to incubate this change is having the right type of talent on hand. You need a mix of tech savvy people and people that understand the products and customers. Also, you need an operational system agile enough to handle quick changes. Often this means overhauling your existing system in addition to hiring new people. It can take a good bit of time to find the right people and the right systems. It can take even longer to get everyone, both old and new employees on the same page, and proficient in your new digital based system. Many companies see this type of growth as relatively easy to assimilate, as mere organic growth. This view is uninformed and can cause problems down the road.

Any digital transformation worth doing involves change that seriously moves the needle. It’s the type of change that is fundamentally new and different to the way things have historically been done. People often think in terms of quarterly implementation periods when they should be thinking about annual periods. Having the right capital plan is key to bridging your digital transformation funding gap. When you have the right amount of growth capital on hand, you can confidently get from point A to point D. You can not only fund the operational changes needed, but invest in marketing and sales to accelerate market ramp up. When assessing capital needs, companies need to err on the side of conservatism. A good rule of thumb is that it will likely take 50% longer and cost twice as much to get there. Here are the Attract Capital best ways to bridge your digital transformation funding gap.

Cash flow-based loans – cash flow based loans provide abundant levels of funding and long term repayments. They act like equity but are structured like debt, and align the lender and borrower as to the growth goal.
Mezzanine or Second Lien Loans – these lenders will provide you current and future capital support, throughout your growth journey. They are a patient source of long term growth capital.
Growth equity – for large scale digital ramp ups, growth equity providers are a great choice as they bring capital and resources to the table.
Venture debt – this loan type is great for late stage, tech companies that have raised considerable equity to date.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.