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)