High growth companies or existing companies that wish to expand their operations are most likely to be in need of funding assistance. Previously such companies would raise the necessary funds from the banks, but in view of the reluctance of banks to lend or because of their policy of offering funds at high lending fees, many companies have decided to approach investors and raise funds directly.
The two most popular methods of raising funds are:
– Share listing
– Bond offering
Companies may issue shares or bonds directly to the investing public, but the more efficient method is to go through a recognized stock exchange and list the shares or bonds on such an exchange through which investors will have easier access to the financial instruments, enjoy security of transaction and be in a position to secure additional information on the Issuer.
Listing financial instruments (shares or bonds) on a recognised stock market is however one part of the transaction. The other part is raising the funds from investors. Many CEO’s or company presidents believe that by simply listing their shares or bonds on a particular market, investors will rush and snap up their issues and they will reach their fund raising targets. Unfortunately, that is not the case.
A company needs to market itself and attract attention and interest in a very crowded and competitive environment where companies from all jurisdictions are competing for funds.
Well established companies with a solid reputation and strong balance sheet usually turn to multinational global banks to assume responsibility for both their listing and fund raising but subject to having the ability to paying millions in fees to the investment bankers.
Small to medium sized companies who cannot pay such a high cost may turn to more affordable alternative solutions such as finding an investment firm which will guide them through the listing and funding companies that may provide funds and or use the direct approach of using a listing on a recognized stock exchange such as Cyprus to approach investors directly.
Eurivex is a regulated investment firm specializing in guiding companies to successfully list their shares or bonds on recognized EU stock exchanges such as Cyprus and cooperates closely with specialist funding sources in arranging for funding for companies that utilize the listing services of Eurivex.
Working closely with the clients, Eurivex identifies the funding needs of the clients and then makes the introduction to the funding sources which include major European global banks, private equity and venture capital as well as institutional funds.
The success of the fundraising will however depend on the:
– Quality of the issuer
– History and in which industry it is involved
– The Company’s previous track record, profitability and balance sheet size
– How much are the existing owners contributing into the project
– Where and how the proceeds of the funds will be used
– What is the return objectives
– The management team and members of the Board
– What contingency plans the Company has in the event of adverse market conditions
Some of the funding sources with whom Eurivex cooperates charge a monthly retainer in addition to a success fee, while others only apply a success fee.
Eurivex does not cooperate with funding sources who demand an introduction fee or other gimmicks, the objective of which is to secure up-front cash from the borrower before delivering the funding.
The majority of funding sources apply their own rules of how companies can qualify.
One of the most effective and cost-efficient methods to keep interest on a stock high and attract investor attention and funds is the use of social media networking, as well as traditional media outlets through which a company can remind investors of how it is achieving and surpassing its goals and delivering outstanding results.
Another approach is to establish a regulated investment fund to raise funds the objective of which is to invest in a particular business.
In Cyprus such regulated private funds are known as International Collective Investment Schemes (ICIS), which at the moment are supervised by the Central Bank of Cyprus. The legal basis of an ICIS is a limited liability company but with variable capital. When there is demand from investors, it will issue shares or units directly to investors without going through the Registrar of Companies and when investors exit, the shares or units are canceled. The entry/exit is based on latest Net Asset Value (NAV) according to the terms and conditions stipulated in the Private Offering Memorandum. An ICIS can sell its shares/units to maximum 100 investors, classified as professional under MiFID rules and each with minimum EUR 50.000 investment. There are more than 100 such funds operating under the supervision of the Central Bank of Cyprus.
(Shavasb Bohdjalian is a certified Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10. Eurivex is also approved to act as Nominated Advisor for listings on the Emerging Companies Market of the Cyprus Stock Exchange and approved to act as Listing Agent on behalf of Issuers wishing to list their securities on the Vienna Stock Exchange. Eurivex offers complete packages and solutions for all types of listings including structuring assistance. The views expressed above are personal and do not bind the company and are subject to change without notice)
Faced with the stark reality that securing a loan from the bank for established businesses will be very difficult during 2013 while next to impossible for startup companies, many entrepreneurs should consider bypassing the banks and approaching investors directly.
The most cost effective way to raise money for startups is to consider the formation of a public company and then list the shares on a stock market, after which Issuers will be able to legally and within the provisions of the capital market rules to raise funds for their projects.
While many stock exchanges require a minimum of 2 years pre-history, the Cyprus Stock Exchange allows for startups to list on its Emerging Companies Market, which is the equivalent of a Multilateral Trading Facility (MTF Market) under simplified rules and provided they submit a detailed business plan and 3-year financial forecasts.
MTF Markets are springing up across the EU as part of the MiFID to break up the monopolies of stock exchanges and encourage competition. In the MTF Market of the Cyprus Stock Exchange (CSE), there is no need to submit a prospectus since listing is done via Admission Document. The listing process can be completed within a month.
Other main advantages of the MTF Market is that there is no daily volume requirement, there is no maximum ownership rule, which means the beneficial owner can legally hold 100% of the share capital through related parties or nominees. There is no minimum market capitalization rule, which means even a EUR 26.000 worth company can list. Also importantly the continuous obligations after listing are minimal.
“I refer to the MTF Market as – Lite Exchange – where an Issuer enjoys simplified listing rules while operating as if it was a private entity” said Shavasb Bohdjalian, CEO of Eurivex, a Cyprus Investment Firm and approved by the CSE to act as Nominated Advisor and one of the most active advisors for new listings on the MTF Market of the CSE in 2012.
After the company is listed on the ECM/CSE, it can use its ISIN to publicize its listing on a recognized EU stock exchange which is a eurozone member and raise funds through private placements for further expansion of the business.
The fund raising success depends on:
– The fundamentals of the company,
– Company track record with respect to profitability – balance sheet size and quality of assets
– Management team, board of directors, company executives
– An independent and qualified firm conducting due diligence to confirm existence of assets, claimed operations
– Current business plan
– How the proceeds of the new issue will be used – in what project, what investment return
– Future plans
– What contingency plans management has in place in the event that there is slowdown in economic activity or an unforeseen development causes losses at the company.
The most effective ways to raise funds is to organize investor road-shows where presentations can be made to a group of investors or through one-on-one presentations to institutional investors. Other means include organising Media and Internet promotion campaigns through popular sites and social media, do SEO of the Company’s web site and blogs as well through agents who can drum up interest against a fixed or variable commission on funds raised.
(Shavasb Bohdjalian is an approved Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10, licensed to trade in forex, offer portfolio management services and hold client funds. Eurivex is also an approved Nominated Adviser for listings on the Emerging Companies Market of the Cyprus Stock Exchange. The views expressed above are personal and do not bind the company and are subject to change without notice. Investing in markets and trading on leverage is highly risky and it may not be suitable to all investors since it carries a high degree of risk and you can lose more than your initial investment)