Raising Equity for Business and Property
Wow, my last newsletter - Debt Finance Options Available - certainly got some response. It’s been one of the best read newsletters since we started TBK Capital 5 years ago.
I, I will be king
And you, you will be queen
Though nothing will drive them
away
We can be Heroes, just for one
day
We can be us, just for one day
David Bowie – Heroes
Wow, my last newsletter - Debt
Finance Options Available - certainly got some response. It’s been one of
the best read newsletters since we started TBK Capital 5 years ago.
So I thought it appropriate to revisit the subject of raising capital and give
some examples of the types of offers we have available.
Equity in your House
My last newsletter on this subject “Redistribution
of Capital into Productive Assets” was in March 2015 and discussed
residential property as an investment and its use as security to raise debt for
businesses. While strictly speaking not equity, many small businesses use the
security of the owner’s house as the basis of a loan to start a business.
Not much said in that newsletter has changed since then. In fact rising house
prices remain a good source of funds for buying or starting business. And at
the rate house prices are increasing this will continue to be popular. It’s
interesting to read BNZ economist Tony Alexander’s latest Weekly
Overview on the housing market where he says “There are growing signs that after pausing for four months
the Auckland [housing] market is sparking back into life with new assistance
now from the latest easing of monetary policy and indications of more to come.
Will the return of Auckland strength be at the expense of the rest of the country’s
surge? No. It’s a nationwide phenomena now.”
Equity and Debt
This issue of Tony’s Weekly Overview also contains very interesting comments on
the Dairy industry, which is well worth reading. And in it there’s a lesson for
us all in the dangers of funding growth through debt.
Tony makes the point that farmers debt levels grew rapidly to fund the growth
of the Dairy industry. He says “That
is what debt does – it allows an acceleration in growth. But it comes at a cost
of heightened exposure to shocks”.
And, as he points out, farmers have been reluctant to fund their growth with
capital even though they have known someone in the past who had had to sell
their farm because they could not service their debt.
Which leads me to one of the great observations from Tony’s article, which many
of us have seen over the years, “Kiwi
businesspeople suffer from an unwillingness to use outside capital to fund
their growth because it leads to some loss of control over all decisions and sharing
of gains. There has been a preference in farming for rapid growth to be funded
by debt rather than equity”.
Raising Capital for
Business
So if you aren’t going to use the equity in your house to start or buy a
business where can you find the funds? My last newsletter on this subject was
published in December
2014. That issue covered Equity Crowdfunding, TBK Capital’s role in
obtaining cornerstone shareholders (including active participation in the
business), and some comments on Convertible Notes as form of raising capital.
There are a number of sources of Capital for business. These include Friends
and Family, Angel Investors, NZVIF (and other government sponsored agencies),
Private Equity Funds, and Private Investors many of whom like you are
subscribers to our TBK newsletters.
If you’re looking to raise capital for your business there are well founded
rules you’ll need to follow to attract investors. To give a few:
- The business is in an attractive market sector.
- The business has experienced management with a proven track record.
- The business has a comparative advantage in that market.
- You have a well prepared business plan including a strategy to deliver growth.
- There is an exit strategy in which investors can realise on their investment.
How we can Help
Through the TBK Group we are NZTE accredited to give advice to businesses on
capital raising, business planning and marketing.
Recent examples of some equity offers, in Crowd Funding especially, have raised
questions about the pre-money valuations of the businesses seeking
capital. At TBK Capital we have a requirement that businesses have a
valuation by a recognised valuer before we can take them to market.
Our sister company Tabak
Business Sales is well versed in the ability to value business – in fact it
is a requirement for a business being offered for sale to have a valuation
- so we are well able to supply that service. We can also provide
assistance in the preparation of your business plan.
TBK Capital raises capital for businesses at all stages in their life from
start up through expansion to pre-IPO. We also have access to capital via the
new Crowd Funding regulations through an arrangement with a licensed operator.
We are not involved in raising money on the New Zealand Stock Exchange – but
have contacts who are. We specialise in that pre-IPO funding that’s required to
bring the business to the position where it can seek this form of more liquid
capital.
Raising Capital for
Property
For many years I’ve been involved in raising equity (including quasi-equity
like mezzanine finance) for property. This includes financing the purchase of
existing properties, the construction of new commercial buildings, and new
developments and subdivisions.
The requirements to attract equity partners are pretty much the same as for
businesses and include.
- The property is in a sought after location and – accordingly – with good tenancies.
- The property either has stable long term tenancies or the ability to obtain them through value-add policies (like the Augusta Value Add offer below).
- Any development or subdivision usually requires pre-sales.
- The project has experienced management with a proven track record.
- There is an exit strategy in which investors can realise on their investment.
Up and Coming Equity Offers
We’ve got a number of new projects in the pipeline including:
- A business seeking capital to assist in the development of a software application for gyms that links trainers and gym members so each can agree on a suitable programme and keep up to date with progress. Has international distributor eager to take the application to Australasia, the U.K. and the U.S.
- Established systems integration business that currently builds IT solutions for the SME market. Now new customers include large businesses like banks, and pharmaceutical and insurance companies. Looking for capital to assist in marketing to this larger business sector.
- Raising a loan to a new New Zealand company to facilitate the acquisition of the assets of a modern New Zealand processing plant, manufacturing milk and fruit products. The existing business already exports these to Australia, China, Korea, Taiwan, Malaysia and other South East Asia countries. The loan is unsecured, expected to be for 6 months, with a very attractive interest rate, plus a free carry interest in the new company. Further information supplied under confidentiality agreement.
Current Equity Offers
The following are examples, in alphabetical order, of clients we have seeking
equity investment.
Augusta
Value Add Fund. An excellent way to participate in adding value to property
and exiting at a profit. Available to “wholesale”
investors only. Applications need to be in now. If you haven’t sent yours in
yet call me.
Baboom.Streaming
music is revolutionising the music industry. Baboom is a potentially high
return investment set up for a further capital raising or buyout offshore. Next
capital raise - or exit - may differ from current
expectations.
Entek.
This is a software business that’s been providing cloud based business workflow
automation and productivity software to New Zealand businesses since 2013.
Their current client base mainly consists of medium to large businesses
including Mighty River Power, Ministry of Social Development and Wellington
City Council. Reply to this email or call me for copy of the Information
Memorandum. They’re looking to raise $600,000 for 27% of the company.
Groove
Group. New Health & Safety regulations are being introduced which Groove Group have passed with flying colours. The company is
reorganising its finances and will be revising its current
offer.
Payport.
As online shopping continues to boom, shipping goods out to customers
efficiently and getting paid remains a challenge. Payport provides an online
freight booking aggregator and freight management system, plus an online
payment gateway. Now in discussions with potential cornerstone shareholders
prior to a potential crowd funding offer. Click here
to see a summary of the original Offer.
RightWay.
This is a new accounting and advisory service provider that’s revolutionising
the accounting service industry in Australasia. It’s modelled on the
belief that the role of accountants is changing, and must now also include
real-time business advice to their clients. See a summary of the Offer here.
Secure
Wealth. This U.S. based business is a New Zealand company that uses a
combination of technologies that together provide a much more secure user
environment than existing online services. The New Zealand company owns all the
Intellectual Property and has a close association with Financial Advisors in
the U.S..
Skin
Alive. A cornerstone shareholder with 10% of the company is now on board.
Up to 28% of the company is still
available. Products sold internationally in the U.S., Europe, U.K.,
Vietnam, South Korea, Brazil, Hong Kong and China. Here in New Zealand being
taken on by Mitre 10, Amazon, Fonterra, and next summer New World.
Spotlight
Reporting. This company provides 4 cloud based business intelligence tools
for accountants, advisors and CFOs of businesses. See a summary of the Offer here.
Their current accounting software partners are Xero and Intuit.
Raising Debt Finance
On the matter of debt, at TBK Capital a core part of our service is raising loans for property and business. See my last newsletter on this subject. Or for more information on debt finance email me or give me a call.
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The above investments are not offers of financial products that requires disclosure under the Financial Markets Conduct Act 2013 (Act) and are available only to wholesale investors as defined in Schedule 1 of that Act (other than any person who is only a "wholesale investor" under clause 3(3)(b)(i) or (ii) of Schedule 1 of that Act). They are intended for distribution only to selected people to whom, under the relevant laws, they can be lawfully distributed. They cannot be distributed in any other jurisdiction, or to any other people. They are not offers or solicitations in any jurisdiction in which such offers or solicitations are not authorised, or in which the person making such offers or solicitations are not qualified to do so, or to any person to whom it is unlawful to make such offers or solicitations. Any representation to the contrary would be unlawful. No action has been taken by any person that would permit a public offering in any jurisdiction where action for that purpose would be required.
CheersJP
John Paine B.Sc., Dip BIA
TBK Capital Limited
Level 15, BDO Building
120 Albert Street
Auckland 1010, New Zealand
Phone +64 9 307 3257
Fax +64 9 309 4519
Mobile +64 21 902 901
Email john.paine@tbkcapital.co.nz
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