How to win, gain investor
Gaining investor - Explained
A way to attract investors
Almost all entrepreneurs reach a certain stage of development to the stage when additional funding is needed for development. At that point, the entrepreneur is considering the possibility of finding an investor, which will ensure the further development of the company. For many years, Polish entrepreneurs have access to a variety of funding sources including private investors. The main investors in the Polish market are the different types of funds, specializing in selected industries or funding specific stages of business development.
The process of finding an investor has many features in common regardless of the stage of development of the business or industry. Such features include:
Dynamic growth and significant profitability.
The further development of the company should be sufficiently dynamic to be able to justify the risk taken. If the sector recorded a marginal increase of a few percent will increase the company 12% -15% and much higher profitability than the sector there is little probability of finding an investor despite the fact that the company is developing a lot better than the industry. Return on invested capital should be substantial, it is difficult to determine a specific number but a lot of funds are expected annual return minute 30%.
Enterprising and competent management
The Board should confirm their ability to conduct business achievements to date, preferably in the same company or an industry reference concrete achievements that can be easily quantified.
In preparation for the development of the company, the board powinie have clearly defined strategies described forces and means for its implementation. The plan should show which way the company makes money and what are its competitive advantages. The assumptions for the financial projections should be realistic best to have independent sources. Is purposeful description of the market, including competition and SWOT analysis.
Start up at the stage of sale of goods or services (the so-called. Monetization).
It is difficult to find financing for the project at the stage of an idea or concept prepared. The risk of failure is so high that it is difficult to convince the investor. However, if an entrepreneur to risk your money and will lead to the design stage for prototype or small series is much easier to convince the investor.
Companies often ask themselves this question, especially as a result the need for funding of the banks and exhausted limits or require security are not there. It is assumed that such a problem will come sooner or later. Therefore, to build a better company to adapt to the entrance of foreign investor does not require great efforts, or restructuring. In fact, there are several conditions that must be respected; among others building a transparent history, common knowledge on the management company earns, the strategy (which is carried out) transparent organizational structure and procedures. Catalog of the conditions is not exhausted on this, but these are the key elements to quickly understand the company and its evaluation.
There is no universal recipe how to win investor or investors, at the same time is effective in many ways. Other requirements apply to so-called new business start-ups and other floor against companies that already have a history of earning money and gaining market transition from one stage to another stage of development, expand into new products or new markets.
Where investors win? There are many sources where you can obtain potential investors; financial investors (funds pension funds, investment funds, asset management, private equity, venture capital and other) sector investors, associations of different types of investors, Business Angels, etc.. You can start the tour ,, ,, attracting investors from professional investors who are looking for synergies or invest considering the excess of its capital, it usually invest in companies with a similar profile as the one in which they gained experience. Most professional investors looking for synergies. Sector investors are familiar with it and are able to rationally evaluate the profitability of the investment. Investor allocates capital for the expansion of the company, and in return receives shares or stocks. Another way is to expose the company and the acquisition of equity among investors who invest in the stock market. In this case, we have access to a wider range of investors to whom we can turn to.
The decision on whether the IPO should be preceded by the development of a clear and well thought-out strategy. This means that the first step is a thorough rethink and formulate the development strategy of the Company.
Decision against which companies are looking for capital on an organized market, the choice is between the regulated market (WSE main market) and the market is not regulated NewConnect.
In both markets there is a public offering and private placement.
The public offer is addressed to the 150 and more investors, while private placement to no more than 150 investors with limited advertising opportunities.
Another option is to offer the shares to private investors, especially in the initial stage of its development, is the offering of a designated group of investors including private equity or venture capital. The funds usually expect more benefits than investors in the organized market. Sales for venture capital funds associated with the loss of at least part of the control over the company by the previous owner or owners.
Chart raise capital on NewConnect in Poland for the foreign company on the example of the company from Ukraine.
Raising capital through a public offering and IPO brings many benefits for the company and its owners. :
- Raising capital, multiple emissions
- Promotion and PR
- Motivation for managers and employees
- Organizing activities, reporting
At the same time should bear the costs associated with the IPO:
- costs of the IPO,
- costs later functioning as a public company,
- the need to disclose information about the company and its activities,
- the need to comply with regulations on public companies,
- the need for greater respect for the rights of minority shareholders,
- putting part of future profits
Comparison of the benefits of being a public company and private placement
comparison of the market: the main and NewConnect
The number of new listings of foreign companies on the WSE
How to check whether the company is ready to be made public
- The adoption of the development strategy by the owners and the management company
- Readiness audit and accounting law
- Willingness to publish the good and bad news
- cost of being a public company
How to contribute to the success of the IPO
The attractiveness of the company - Skillfully presented to the company, indicating the areas in which the company stand out. The company should explain the objectives, which is to serve and offer activities and priorities.
Competent and effective management - The quality of the management team is one of the most important criteria for evaluating the attractiveness of the company by investors. It should be in an optimal way to present market competence and effectiveness of the board.
financial history - presentation of financial data for the period of several years confirming the possibility of working out a profit and positive cash flow
An effective reporting system - the availability of different cross-sections showing a way of earning, profit margins and the exact cost structure. Reporting method should clearly have different cross-sections of revenues and expenses by business lines.
good practices corporate- compliance with international market practices in the management and provision of information determines the quality of the company.
What most investors express reservations:
- little convincing equity story - the lack of a coherent vision of a marketing offer;
- few promising prospects in the eyes of financial investors;
- Differences of view on the valuation of the company between the owners and potential investors;
- insufficient experience of management in the eyes of investors;
- unavailability of appropriate audited historical financial information;
- complex financial history - the lack of adequate additional financial information;
- The complex structure of the group - legal and tax;
- problems in the field of corporate governance;
- significant transactions with related parties;
- insufficient working capital;
- inappropriate or ineffective reporting and control systems (financial and non-financial);
- no change in the organizational culture;
- the wrong or inexperienced adviser;
- poor project management
How much money can be recovered in the course of the IPO? That was the question we all ask themselves Issuers owners and presidents. In this case, it depends on the size and attractiveness of the issuer. You should also rely on historical data IPOs and market situation.
The number of new listings of domestic companies with an offer of shares and the average size of deals million zł on the main market of the Warsaw Stock Exchange on the basis of the size of assets or revenue in the years 2003-2011
The costs of the IPO are for many, especially small companies, one of the most important disincentives to conduct a public offering.
Practice confirms that a decisive impact on the cost of the IPO is the percentage value of the offer. In the case of the smallest IPO on the main market, with a value of less than 50 million zł, the share of costs than 6% in terms of costs debut on the NewConnect market are lower than on the main market, but in the case of foreign companies is much higher.
Costs on NewConnect are:
- remuneration Authorized Adviser
- audit accountant
- legal audit (recommended)
- promotion costs,
- administrative fees,
Investment decisions, institutional investors and individual, take after analysis of the company, which includes the valuation, the history and development prospects. Institutional investors typically have a longer investment horizon than individual investors.
Among the most popular methods of valuation are comparative methods (multiplier) using share prices of companies with comparable sectors and income methods.
Generally, the IPO discount is applied compared to their expected value on the market debut. Discounting is a specific remuneration for the investor submitting a subscription rookie, compensating somewhat the risk associated with the purchase of shares and the costs arising eg. The financing of the purchase of credit. This phenomenon is illustrated by way of shaping the company's share price after its debut.
NewConnect has a higher risk than the main market, which is reflected in the rate of return obtained from companies debuting on the market. The rates of return at the close of the first trading day varied from year 2013 as follows:
What share of the shares should be offered?
The choice of the number of shares is the result of the assessment of how many shares existing shareholders are willing to sell and the amount of money needed to finance the strategy.
With this calculation must take into account the liquidity of the shares on the stock exchange, the dispersion of shareholders and big enough package of shares subject to the offer so that shareholders can efficiently buy and sell stocks.
Each case is individual, however, most sold in the IPO is to 20 30% acacia.
The tasks of the parties involved in the IPO process
Prospectus and the Information Document
For the regulated market and public offerings is required Prospectus. The contents of the prospectus and the rules of its preparation are specifically defined by the EU regulations, in particular the so-called. Prospectus Regulation (809 / 2004).
On the NewConnect market in the private offer is valid Information Document, the content of which is described in Annex 1 to the ATS Rules
A sample schedule for the IPO process on the main market
Obligations Information on the main market and NewConnect
How to get extra money for business development?
Do you take out a loan?
Do you turn to investment funds?
Or maybe the stock market?
Or issues of debt securities?
Companies often get the problem of choosing the appropriate source of funding and its subsequent acquisition on attractive terms. To date, the most common source of development of the company was its own capital and credit. Making the right choice based funding offer banks, funds of a "venture capital" or capital raising capital on the stock exchange.
The decision on whether the IPO should be preceded by the development of a clear and well-thought-out financial strategy means that the first step is a thorough rethink and formulate the development strategy of the Company.
Only then can decide what further developments and its method of financing. One of the basic decision is a choice between equity financing (ie, profit, capital increase by existing shareholders or new shareholders the sale of shares) and foreign capital, that is, bonds or credit. Equity accepts much higher risk than financing the project loan and provides greater flexibility in decision-making. Funding equity ownership affects the system and in the economic sense is much more expensive in the future, because it expects higher returns. However, at the beginning, companies often need equity and not loans.
In turn, the credit is cheaper and easier to be repaid, but it requires a specific order and security. Banks also often are not willing to credit certain projects or industries, especially those characterized by a higher level of risk.
An alternative to bank loans are bonds. The downside of the bond issue - compared to a bank loan - are higher costs of preparing documentation and legal costs and requirements for issuers. As a rule, interest costs are also larger than the loan. The advantage of the bond is to build relationships with investors, who in the future can buy shares of the issuer.
How to get an investor?
See description of the method of obtaining the investor included in the tab Gaining investor. The material is addressed to entrepreneurs, owners Logging money to grow your business. The material shows the actions necessary to obtain financing from the investor, how to prepare the company for investments that create documentation and how to carry on a conversation with the investor.