Private debt broker v generalist advisor: Which gets you the best deal?
When your tech business scales and grows so your finance needs and priorities change.
To service your expanding business requires investment in people, processes and technology.
Along your growth curve, you’ll encounter opportunities.
At the same time, because your path to growth won’t always be linear, you need to plan for contingencies.
To fund the ongoing growth of your mid-market tech business, you can use equity, debt or a combination of the two.
But when all is said and done, when raising either debt or equity, surrounding yourself with trusted advisors and specialists is essential.
Private debt is more flexible than bank debt for helping tech businesses to achieve their goals.
So how do you access the private debt market? Do you talk to your current business advisor? Or do you talk to a specialist? Let’s dig a bit deeper.
What you should expect from a private debt advisor
Even if you’re a CFO, there’s a limit to how much time you can dedicate to searching for and having conversations with private debt funds.
So you’ll want an advisor who can:
- Pinpoint the right debt funds according to your needs. A debt fund known to be comfortable with both your sector and your investors. And of course, one who can give you the money you need
- Increase your chance of success by preparing an investment memorandum that explains your proposition clearly and succinctly. And at the same time gives lenders enough information to make an informed decision
- Negotiate with private debt funds on your behalf
- Manage due diligence and questions as they arise
- Assist you throughout the process, including closing and drawing down funds
Questions to ask a potential private debt advisor
There’s a vast difference between having a list of contacts and having connections.
More often than not, the ability to open doors to conversations comes with years of building up knowledge, contacts and transacting deals.
So when you sit down in front of a potential debt advisor, ask it:
- What is your particular area of expertise?
- What specific experience do you have in structuring and negotiating private debt deals in your space?
- What is your reach? Do you transact deals internationally?
- How do you keep your finger on the pulse for new players coming into the market?
Know what different private debt advisors can do for your business
Big four consultancy firms
Tend to work with companies at the top of the mid-market through to the largest multinational and international firms. Because of their size, you can expect a corporate approach, and a requirement to follow established systems and processes.
Also, because of their monolithic structures, you may find you find get little engagement and no real time spent understanding your business.
Consequently, you might find yourself dealing with a different person every time your file is shared.
And if you have international plans, you might find yourself stuck in a domestic box and not see the global picture.
Mid-tier accountancy firm
Offer more personal service, flexibility and additional services such as business advice, tax planning and sometimes even cash flow management. But again, might have a domestic focus.
More importantly, a mid-tier accountancy firm might not have the depth of understanding of the changing nature of debt funding required to support tech businesses.
Accountants typically charge by the hour. So you need to be specific about what you want them to do for you.
A specialist private debt broker
Similar to accountants, specialist private debt brokers are experts in their field. Because of their networks and experience, they can identify opportunities you might not know about, even if you’re a financially savvy CFO.
Private debt brokers make their money by closing debt deals – not through consultancy.
For this reason, they link their fees to their success. So it is in their interests to find and close debt finance deals with minimum strain on your time and resources.
Why specialists are better than generalists when it comes to raising private debt
You’ve heard the phrase: “Jack of all trades are masters of none.”
With a specialist private debt broker on board, you can:
Have new and innovative ideas brought to the table
Because brokers work with many different companies, often they’ll have solved problems similar to yours in the past.
Consequently, they know which funds to talk to and won’t waste time chasing those unlikely to provide an adequate solution.
Provide lenders with a reasoned argument for positive funding decisions
Lenders need a lot of information from a company before agreeing to a loan.
But CEOs and CFOs often find it unpleasant, answering sensitive questions about the company they love and want to protect.
A broker saves you time by appropriately structuring and presenting answers to questions.
In other words, a broker can construct a clear and sound argument for getting you the funds you need.
Have the skills and mindset of a good negotiator on your team
Knowing what both the borrower and lender wants means that a broker can effectively manage interactions.
Consequently, working with a broker not only gets you the best price, but also the best deal to suit your business, and will reduce your total cost of funding now and in the future as opportunities and the business landscape changes.
Know that getting the right calculation on any equity upside can make a material cost difference on exit.
Have options prepared for mutual gain
A critical part of securing a debt transaction is maintaining the relationship between borrower and lender.
A good broker finds ways to meet both borrowers’ and lenders’ interests, thereby successfully navigating problems based on common ground.
Have someone on your team who practices pitching and closing debt deals every day
Your broker will have had enough conversations to know what private debt funds want and don’t want to hear.
What’s more, their outside perspective brings clarity and focus to the message.
Not all lenders are tech specialists. If you’re a SaaS business, you’ll want a broker who can explain ARR/MRR SaaS commercial models.
Fundamentally, lenders want to be comforted by the strength of the management team, and the numbers. A broker keeps borrowers’ emotions at bay and steers conversations to get results.
Leverage a broker’s deep relationship with its lenders
It goes without saying, the bigger your network and the more deals you do, the more authority you have when approaching funds.
Due to the number of complex transactions sourced, structured and closed together, a good broker will have built up strong relationships with the lenders with which it works.
Because of these consistent and dependable relationships, having a specialist broker on board validates your deal.
So it all adds up to this. Having the right broker with the right experience and connections on your side makes raising private debt smoother, efficient and successful.
If you’d like to discuss options for sourcing private debt to scale and grow your mid-market tech business, drop me a line, and we’ll set up a time to chat.