Raising Capital in Covid19 Conditions
I wanted to get something up quickly to share my thoughts regards raising capital in today’s market conditions.
Should I even try to raise capital?
Our inquiry levels from clients contemplating raising equity have remained steady to date. Many are taking this time to prepare for a capital raise – and be first to take to market when this is all over. Not dissimilar to the ASX listed companies getting in first with their capital raises at the moment.
I look at the ASX where equity is traded in all conditions. For every seller there is a buyer. An organised market of exchange such as the ASX, purposely set up to offer liquidity, will determine value quickly.
Sure, private businesses raising funds don’t have the luxury of a liquid markt. However, we need to ask ourselves from an investors perspective, “why are investors still buying equity in Covid19 conditions?” All stocks are trading. From blue chips to the highly speculative dodgy ones. If your private offer worse than the most dodgy ASX listed companies?
There is so much business owners, whether private or ASX listed, cannot control in normal conditions, let alone control within an economic lock down. However there is one key area where a private business owner can learn from their big brothers on the ASX and control starting today, and in my opinion, improve their attractiveness to investors.
One word. Governance. Business owners have been short selling themselves on this point for years.
ASX listed companies are required to meet and satisfy a prescribed governance, or compliance, framework. Some of the requirements involve meeting ongoing stringent reporting standards and directors who must adhere to certain directors duties. In addition, there is usually a board and committees specifically set up to oversee the entire operations.
On the other end of the spectrum we find private companies who are typically strong in their market and endevour (selling their widgets) and have a few founders signed up as directors.
No one is suggesting that a private business take on the compliance framework of an ASX listed company, but it might be time to take this seriously and look into what is do-able – starting today. Look at expanding the director / board skill set, consider forming some committees that deal specifically with governance and risk and reporting. Look at formally adopting a governance policy of some sort. Research the ASX directors duties and include some of those in a formal governance policy.
Here’s a trick to see how you stack up. Try attract an industry heavyweight to join your board in exchange for equity? All things being equal, if they say no – so will investors. If they say no, ask them why.
For assistance with Information Memorandum services please contact The Financial Writing Company 1300 477210.