Going Beyond Decks for Growth Capital Financing

Posted on: December 22nd, 2022

growth-capital

The maxim “less is more” seems to have few converts when it comes to middle market companies seeking growth capital financing. Most companies seem to believe in quantity over quality in developing their confidential information memorandum. Today, most companies looking for growth capital use a lengthy PowerPoint deck as their form of information memorandum. This choice is uninspired as PowerPoint is frequently ineffective as a communication medium.

It is good for live presentations when additional voice-over color is added. It falls short when consumed outside of a meeting venue when a growth capital lender is reading the deck independently. PowerPoint decks also tend to have only headline points and are read by most lenders on a quick run through basis. Growth capital lenders need a full education on the company, products, specialization, history, industry, and planned growth. The best way to convey this is through a prose based, written document that covers each area in a detailed and analytically supportive manner. Graphically based decks struggle to tell a growth story, and often sound like used car sales pitches.

Word-based documents are more effective at controlling the narrative and putting forth a digestible growth story because they comprehensively educate the growth capital lender through providing transparency, logic, and analytical rigor. The goal in disclosing your information is to create a document that can educate and stimulate the growth capital lender at first pass, before they meet management and dive deeper into the deal. When a growth capital lender receives a well-written word-based CIM, they tend to slow down and spend time with it. If the document is well structured and it covers the key points in a balanced manner, it is easier for them to absorb it and to find it relatable to the universe of companies they have experience with. If the word-based CIM is clear, crisp, and convincing, the lender is highly likely to appreciate the need for growth capital.

As the Fed decides to ease interest rates, middle market acquisition financing structures will benefit in a number of ways. The underlying values of middle market companies will increase leading to a higher enterprise value and lower loan to value ratios for existing portfolio companies of acquisition financing lenders.

The role of acquisition financing is infrequently elevated above a functional transactional one. When a business needs financing to acquire, they go to the market and source acquisition financing to supplement their equity investment to close the deal. Despite existing in many different forms, acquisition financing is rarely explained in terms of the value it brings to the acquirer.

Acquisition financing underwriting usually focuses on business and financial issues that underpin the stability of cash flow. Providers of acquisition financing usually validate the durability of a company’s competitive advantage and the depth of its resource base. Environmental issues are usually not a major part of the analysis in today’s service and technology-based economy.