Helping an Entrepreneur Monetize Full or Partial Business Interests
As an entrepreneur, knowing how to raise sufficient capital can mean the difference between success and failure. Entrepreneurs are often faced with the decision of raising money strategically or as a need to fund business growth. Xerxes Mullan, Global Advisor for financial advisory Avestar Capital, is an entrepreneur himself and has gathered meaningful insights from his years of guiding fellow entrepreneurs with financial advice. “Entrepreneurs should be very strategic about how they think through liquidation and its impact from a long-term planning and tax perspective,” says Xerxes Mullan.
With a fast-changing and dynamic market, entrepreneurs need to make sure they find novel ways to raise capital. The two common ways to do this are through debt and equity financing. However, an important aspect to consider is that the liquidation should not compromise your control stake in the company. Furthermore, liquidation of securities or stock in a company comes with tax disadvantages, and entrepreneurs must have the necessary equity to pay for these tax bills as they arise. Additionally, as you dilute your control over the company, sharing ownership could create a potential conflict for the vision and future of the company. Therefore, entrepreneurs must think through and get advice on how they should liquidate. It is ideal to consult a financial advisor or a tax professional about the consequences and effects this would have from a long-term point of view.
Additionally, when an entrepreneur sells a portion of the stock, you might risk putting yourself in a highly compromising situation. Having a strong legal team at hand is always a good choice in case a situation does not work out. Entrepreneurs are inherently optimistic by nature and believe things may not go wrong. However, if this happens, having a strategic contract properly defined by the legal team with clear and concise clauses and direction will prove to be your saving grace. Xerxes strongly recommends investing time and money to find the right legal team to represent you and your company. No successful entrepreneur should leave seeking legal guidance to the last minute. If you are thinking of fundraising, some attorneys specialize in specific forms of corporate law. Therefore, make sure to pick an attorney familiar with the type of financing you are seeking.
The next thing an entrepreneur should do is bring on board a strategic advisor or investment banker, especially if they need help raising partial capital or if you are considering selling the business. This process should take place professionally so that you can create a competitive bidding process rather than go to one person and leave a lot of money on the table, which is generally the scenario more often than not. A complicated VC funding or equity crowdfunding should ideally also be done under the guidance of an experienced retail or investment banker. If you are looking at an IPO, you would want a banker experienced in SEC compliance and legal and investor relations. With newer ways of raising capital, it is crucial to note that some crowdfunded raises can also be on a platform, and you do not need a broker-dealer.
As an entrepreneur, you may also have to deal with accredited investors and will need a dedicated investor relations firm to communicate appropriately with your investors. These firms specialize in the language that official investments need and consist of legal and compliance issues from a reporting point of view. Apart from ensuring that you communicate appropriately with your investors, these firms can also help raise money through their screened database of investors.
Lastly, partnering with an experienced marketer who can reach out to and attract the kind of investors you are looking at is very important. Finding a full-service firm that functions as a strategic brand consultant, helps with creating investor pitch material, a fundraising marketing strategy, and even the production of advertising campaigns is crucial. You will want a firm that enables you to convince your investors.
Partnering strategically with the right firms and experts will guide you to raising capital seamlessly. Half of your work will be done if you can assemble the right team.
Pranab Bhandari is an Editor of the Financial Blog “Financebuzz”. Apart from writing informative financial articles for his blog, he is a regular contributor to many national and international publications namely Tweak Your Biz, Growth Rocks ETC.
