Perspectives on Capital Raising

When financial managers undertake a capital raise, whether it be for an acquisition, growth capital, or refinancing, the process followed is often reactionary and narrow in scope. The typical steps include requesting proposals from banks or other capital providers, weighing the merits and drawbacks, selecting a partner, and executing the transaction.

But as capital markets have grown and become more complex, a more strategic trend has emerged: approaching capital raises proactively, with greater insight and intentionality. For financial managers who adopt this methodology, the process becomes more efficient, and the outcomes tend to be more predictable and rewarding.

Drawing on decades of experience as both a lender and an independent advisor, and across hundreds of billions in capital raises, CriticalPoint’s K.C. Brechnitz, Managing Director and Head of Private Credit, has identified four critical insights that every finance professional should consider.

1. The Stakes May Be Higher Than You Think

A financing deal isn’t just about the dollar amount you secure. The value at stake is multifaceted. It includes:

• Hard Economic Value: This is the most obvious part—the pricing, fees, and expenses. Even a slight difference can add up. For example, a quarter of a percentage point on a $1 billion loan over three years amounts to $7.5 million.
• Soft Economic Value: Beyond the hard economic value, it’s vital to consider elements like the potential for future amendments, the liquidity of the debt on the secondary market, and how financing might create or mitigate currency and rate exposures.
• Qualitative Factors: These are often overlooked but can be critical. They include the flexibility that the deal offers, the administrative burden of managing the financing, the confidentiality of the process, and your future access to the market.

The key point here is that numerous factors can make financing more or less successful. It’s critical to not only keep them in focus but also to have experience in navigating and negotiating those factors in detail.

2. You May Not be a “Black Belt” in This Fight

It’s easy for a seasoned finance executive to believe they can handle a capital raise on their own. After all, they’ve reached a senior-level position. However, while a CFO understands finance, they don’t execute capital raises on a daily basis. The professionals on the other side of the table, the bankers and investors, do.

We often remind our clients, when embarking on a financing transaction, that they will be stepping into the ring with black belts, and ask which belt they prefer to wear. The most successful leaders are smart enough to recognize what they don’t know, confident enough to lean on an expert, and aware that their job is bigger than just the financing. To get the best outcome, augmenting an internal finance team with actual black belts can go a long way.

3. You May Not Be Getting the Most Objective Advice

It’s important to recognize that not all advice is created equally. Although people who offer counsel are often sincere, they may not be the ideal advisor. When a finance executive seeks advice, the advice often comes from:

• Advocates who are not experts: These might be lawyers or board members who may advocate on your behalf but might not have deep expertise in the specifics of a complex financing transaction.
• Experts who are not advocates: Surely, bankers and investors are experts, but their role as intermediaries or buyers of the paper is a natural impediment to them solely advocating on your behalf.

The goal is to find a source of advice that is both an expert and a dedicated advocate for your business.

4. It’s Not a Pass/Fail Exam

Simply securing the desired capital was never the sole measure of success in this business. It’s quite common for companies to close into financing, and a few years later realize it was a grave mistake.

It’s important to expand the financing scorecard to encompass a range of metrics that align with the hard and soft values discussed in point #1 above.

Is the capital structure you ended up with ideal for facilitating your business strategy? Are the lenders and investors you’re matched with best suited for your business going forward? Did you approach the market at the right time, with the right strategy and story to optimize your outcome? Did you obtain the best terms the market had to offer?

The true measure of a financing’s success is not only its price and quantum, but also its durability, flexibility, and alignment with the company’s needs.

Final Thoughts

These thoughts are not all-inclusive, but they form the foundation of a healthy mindset to carry into any financing. The more complex the financing exercise—whether it involves acquisition financing or entering a new capital market—the more important these broader perspectives are, and the more they will help you improve your outcome.

For any questions on this article, or to discuss raising capital, capital structure, or capital markets, reach out to: