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How private debt & equity can support you when your forecast has shifted to the right

If you’re a CFO who is faced with delayed growth plans, making cutbacks and a sales forecast shifting to the right, you may think your choices are limited.

But the reality is, despite the crisis, there are still investors committed to supporting tech companies through the peaks and troughs of scaling a tech business.

For instance, did you know that despite coronavirus uncertainty, technology investors Insight Partners has raised $9.5bn for its newest and largest fund yet?

That’s right!

At this point you realise, now is the time to get options on the table. 

To help you get started, here’s what  you need to know about the private debt market.

 

What is private debt?

Private debt is a term given to debt investments not financed by banks or traded in an open market.

You may also hear private debt described as alternative debt, direct lending or private credit.

Typically, the people who run private debt funds have strong backgrounds in commercial banking.

Better still, many focus on niches and have expert knowledge of the markets in which they work.

 

How did private debt come about?

 

After the 2008 global financial crisis, bank lending to mid-market companies shrank because bankers had to repair their battered balance sheets and contend with stringent new regulations.

So alternative financiers, including private debt funds, stepped in to fill the gap.

And fill the gap they did. In a report titled: The Rise of Private Debt as an Institutional Asset Class ICG tells us: “In the US, “non-bank debt accounts for 75% of total corporate lending, compared to 10% in the Eurozone and 28% in the UK.”

It added: “Private debt is growing in the UK and Europe as investors realise its strong returns.”

Elsewhere, in its <Alternative Lender Deal Tracker Spring 2019 report, Deloitte link to report states: “Surveys show that the private debt asset class as a whole is forecast to hit $1.4 trillion globally by 2023, passing real estate in becoming the third-largest alternative investment asset class after hedge funds and private equity.”

 

What makes private debt attractive to tech companies?

 

Private debt makes it easier for tech company CFOs to raise finance to support a specific need. For example, time sensitive and capital intensive M&A activities.

But that’s not all. Private debt relieves some stress placed on tech company CFOs who need to raise finance during the turbulent global economic and political environment.  During these times, banks have little appetite for risk.

 

What are the advantages of raising private debt over bank debt?

 

First off, private debt funds can provide more flexible loan structures. In direct contrast to bank lending, private debt funds can offer unsecured options. They also consider non-amortisation loans.

Then because many private debt funds focus on sector niches, they can provide less restrictive terms, including less stringent covenant packages.

After that, close access to decision-makers means private debt funds can shorten credit processes and increase the speed of execution.

Unlike bank lending, private debt funds do not restrict your use of funds.

Beyond that, you can use private debt to replace, top-up and complement existing finance facilities.

Most compellingly,  private debt allows companies to access more significant loan amounts without diluting equity.

 

For what purpose do tech companies use private debt?

 

During these unprecedented times, you can use private debt to:

 

  • Manage your cash burn rate
  • Set up working capital buffers
  • Maintain your liquidity
  • Get funding to weather inflection points and make strategic pivots where necessary

 

How can tech companies access the right private debt funds?

 

In its Alternative Lender Deal Tracker Spring 2019 report, Deloitte noted: “The private debt market can be overwhelming, with numerous complex loan options offered to borrowers.”

To find the right private debt fund, and structure the right private debt finance deal consider talking to a specialist private debt brokerage firm.

It is in a specialist private debt broker’s interests to find and close private debt finance deals with minimum strain on your time and resources.

 

So it all adds up to this

If you’re worried about a sales forecast shift to the right, and lack of funding available, then talk to a specialist private debt broker. 

With their help you can ready your war chest to help you to deal with the unprecedented changes in the business environment.

In particular, a private debt broker can get you options on the table to help you to maintain your cash runway, liquidity and make strategic pivots where necessary.

Trust me; you’ll be glad you did.

Covid-19 response, help and guidance

Are you an owner, CEO or CFO of a tech company and worried about how Covid-19 affects your ability to raise capital?

In this post, I want to arm you as a business leader, with information to help you to make the right decisions about how you can use private debt to keep your company liquid and to maintain cash flow during the crisis.

I’ll cover the five common questions you ask and give you my answers to those questions. 

If you have additional questions about your ability to raise private debt during the Covid-19 crisis, contact us online or call us today on +44 2071 181 108 to speak to a specialist private debt advisor about the current lending market and how you can get options on the table.

 

1. How is the private debt fund market affected by the Covid-19 crisis? Can I still access funding?

Here’s some good news. Yes –  while private debt funds are focusing more on managing their portfolio companies, they are still open for business. 

If you have a robust business model and operate in a market with plenty of room to grow, then you have the opportunity to close a transaction.

However, given the increased credit risk associated with these uncertain times, private debt funds want to avoid overleveraged transactions.

 

2. What about the cost of capital? Is it increasing?

At the moment, we haven’t seen the cost of capital being unduly affected by the Covid-19 crisis.

But it might mean some businesses that would have qualified for certain funds yesterday might have to consider slightly more expensive options today. But we are talking about one or two % points here.

 

3. How has Covid-19 affected the process of raising private debt?

First off, you can expect timelines to increase. Therefore, we recommend you start conversations earlier. 

In particular, you should factor in an increase in the lead time from signing a term sheet to completing the process. In other words, we expect the process, including due diligence to take between 12 and 16 weeks to complete the process, and drawdown funds.

 

4. What should I do now to maintain the financial strength and stability of my company?

We recommend you get options on the table now so that you can make an educated decision about how to:

  • Manage your cash burn rate
  • Set up working capital buffers
  • Maintain your liquidity
  • Get funding to weather inflection points and make strategic pivots where necessary

 

5. Do I need to postpone my mergers and acquisitions plans?

M&A activity is always a tough subject during troubled times. 

So once again, we recommend getting options on the table so that you can ready your war chest to help you to deal with the unprecedented changes in the business environment.

The bottom line is this. During the Covid-19 crisis, private debt funds will focus more on managing their portfolio companies. But at the same time, they will consider taking on new deals from companies that:

  • Can demonstrate a robust business plan
  • Operate in a market with plenty of room to grow

If this sounds like your tech company, then now more than ever we recommend you look at funding options before you need them.

 

How we’re continuing to support you and your business

Know that Fuse Three has one goal. To help fast-moving, disruptive and agile tech companies around the world to keep going through this unprecedented crisis by brokering specialist flexible private debt finance with minimum dilution. 

So please be assured that we’ll do our best to support you and your business during this crisis.

 

Some additional resources 

And finally, you may find these additional resources useful:

 

Practical tips tech companies can take to maintain financial strength and stability

How tech companies can use private debt to navigate inflection points

Here’s a method to help you to extend your cash runway

Why raise debt capital when you don’t need it

Fuse Three assists MarTech company to extend its cash runway with private debt capital

A UK MarTech company engaged specialist private debt broker Fuse Three to raise £1,500,000 in private debt capital to extend its cash runway.

The MarTech Company improves the way B2B sellers and customer facing teams communicate with their customers. 

 

Situation

Fuse Three’s client, a UK based MarTech company is achieving moderate growth, but is concerned about client concentration.

To solve the problem, the directors want to reduce the company’s monthly payments to extend its cash runway.

The company chose to work with Fuse Three because of its experience in raising private debt for B2B SaaS companies.

 

Objectives

  • To release capital to extend the company’s cash runway by refinancing existing debt

Outcome

  • Got term sheets on the table quickly and within the company’s timescales
  • Kept the management team’s workload as light as possible during the debt raising process
  • Helped the company to avoid being heavily diluted by the new capital it needed to keep it on its growth trajectory

 

About Fuse Three

Fuse Three helps fast-moving, disruptive and agile tech companies around the world to scale and grow by brokering specialist flexible private debt finance with minimum dilution.

Practical tips tech companies can take to maintain financial strength and stability

These are unprecedented times. What do you do when faced with the world grinding to a halt?

While CEOs and CFOs scramble to assess risks and take action to mitigate against short term scenarios, it is worth pointing out that planning for the long term will help keep you strong and stable.

You see when you plan for the long term; you keep your options open. Building a war chest helps you to deal with changes in the business environment.

Here are some practical steps you can take:

 

1. Be proactive in speaking to advisors about your options 

 

A specialist debt advisor knows which funds to approach to support your transactions. Better still can get options on the table to you fast.

 

2. Review your cash runway

 

Make sure your company doesn’t outrun its source of cash. Investigate options for temporary finance. Know that debt finance buys you time and gives you a protective ‘financial’ cushion so that you can get back on track.

 

3. Review your working capital requirements

 

Cash is king. Strong working capital helps you to stay resilient when faced with unforeseen circumstances such as a sudden decrease in sales revenues.

 

4. Review your business and resources 

 

Determine what cash you need to operate in a complex environment. Also, make sure you have the funding you need to hit the ground running when the world returns to normality. 

 

5. Look for opportunities to maintain and control your business

 

There’s no time like the present to remind yourself that business growth isn’t always linear. Make sure you have the funding you need to weather inflection points and make strategic pivots where necessary.

 

To sum up

 

The best advice we can give CEOs and CFOs of tech companies is to ready a war chest to help you through these uncertain times.

 

A specialist debt advisor can run through your options. Also, source the most appropriate lending partners and structure transactions so that you can confidently take steps to keep your company financially strong and stable.

 

As a result of your planning, you’ll give yourself options for:

  • Extending your cash runway
  • Keeping working capital flowing
  • Investing in business and resources so that you can hit the ground running when the market returns to normal
  • Having the financial strength to weather inflection points

 

I’m ready. Are you?

How to take the pain out of buying out a departing shareholder

[Free chapter from my eBook]

 

Do you have a shareholder departing due to retirement, or moving on to another venture? Or indeed as a result of a company acquisition?

Recapitalising your tech business with private debt to fund a partial cash-out is a little known way for companies that do not have cash in the bank to buy back shares from a departing shareholder.

You may think share buybacks are not for your company, because you typically associate them with listed companies, including tech giants such as Apple, Google and Microsoft.

But here’s the thing, companies of all sizes may at some point find themselves in a position where they’ll need to repurchase shares. 

 

What is a share buyback?

According to Investopedia, “Share buybacks refer to the repurchasing of shares of stock by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private investors.”

 

What do I need to think about when planning a share buyback?

First off, assess the value of the departing shareholder’s equity. To do this value your business and apply a value to the equity stake associated with the person leaving. 

Then, when you’ve decided upon a value to which everyone agrees, choose the most appropriate funding for the buyback.

 

What type of finance is available to fund a share buyback?

 

Private debt bridging loan

Similar to a traditional bridge loan, a private debt bridge loan is a short-term loan that provides companies with immediate cash flow/capital.

 

A partial cash-out

If you’re not overleveraged and cash positive, you can recapitalise your business with private debt to fund a partial cash-out. You can then use the proceeds of the partial cash-out to buy out your departing shareholders.

 

When should you think about raising finance to execute a share buyback?

Early exit planning gives you the time you need to explore options for raising funds.

Of course, the need to buy out a departing shareholder is just one of the reasons why tech CEOs find themselves in a position where they need to take money out of their businesses.

That’s why I’ve written a handy eBook that outlines six different scenarios in which tech CEOs should consider recapitalising their businesses with private debt to enable them to execute partial cash-outs.

 

Download “Your blueprint to cashing out of your tech business”

Blueprint for cashing out of your tech business

 

Not only does Your blueprint to cashing out of your tech business provide you with a strategy for recapitalising your business with private debt so that you can arrange a partial cash-out to fund a share buyback, but it also sets out:

  • Key features of private debt transactions
  • How to get advice about cashing out of your business
  • What to consider in regards to funding
  • The role a broker has in structuring private debt finance deals on your behalf

As well as an abundance of useful resources.

You can download Your blueprint for cashing out of your tech business here.

And if you’d like additional guidance about your options for recapitalising your business with private debt to fund a partial cash-out of your tech business, do get in touch.

 

Private debt versus bank lending for technology businesses

Finding the right debt finance instrument to fuel the growth of your tech company can be stressful. You know there has been an explosion in private debt lending, but how do you navigate your way through the many funds in this complex new market?

Moreover, how can you tell the differences between bank and private debt lending facilities?

In particular, how do you fathom out the differences between debt fund loan structures and reporting requirements?  And the cost of capital?

Then, of course, how can you be sure your chosen private debt fund can deliver on its promises?

If you’re considering raising private debt for your mid-market tech business, in addition to or as an alternative to bank lending, here’s what you need to know.

 

What is private debt?

Private debt is a term given to debt investments not financed by banks or traded in an open market.

You may also hear private debt described as alternative debt, direct lending or private credit.

Typically, the people who run private debt funds have strong backgrounds in commercial banking.

Better still, many focus on niches and have expert knowledge of the markets in which they work.

 

How did private debt come about?

After the 2008 global financial crisis, bank lending to companies shrank because bankers had to repair their battered balance sheets and contend with stringent new regulations.

So alternative financiers, including private debt funds, stepped in to fill the gap.

And fill the gap they did. In a report titled: ‘The Rise of Private Debt as an Institutional Asset Class’ ICG tells us: “In the US, “non-bank debt accounts for 75% of total corporate lending, compared to 10% in the Eurozone and 28% in the UK.”

It added: “Private debt is growing in the UK and Europe as investors realise its strong returns.”

Elsewhere, in its Alternative Lender Deal Tracker Spring 2019 report, Deloitte states: “Surveys show that the private debt asset class as a whole is forecast to hit $1.4 trillion globally by 2023, passing real estate in becoming the third-largest alternative investment asset class after hedge funds and private equity.”

 

What makes private debt attractive to mid-market tech companies?

Private debt makes it easier for mid-market tech company CFOs to raise finance to support a specific need. For example, time sensitive and capital intensive M&A activities.

But that’s not all. Private debt relieves some stress placed on tech company CFOs who need to raise finance during the turbulent global economic and political environment. During these times, banks have little appetite for risk.

 

What are the advantages of raising private debt over bank debt?

First off, private debt funds can provide more flexible loan structures. In direct contrast to bank lending, private debt funds can offer unsecured options. They also consider non-amortisation loans.

Then because many private debt funds focus on sector niches, they can provide less restrictive terms, including less stringent covenant packages.

After that, close access to decision-makers means private debt funds can shorten credit processes and increase the speed of execution.

Unlike bank lending, private debt funds do not restrict your use of funds.

Beyond that, you can use private debt to replace, top-up and complement existing finance facilities.

Most compellingly, private debt allows companies to access more significant loan amounts without diluting equity.

 

For what purpose do high growth tech companies use private debt?

The most common uses of private debt in the mid-market include:

  • M&A finance
  • Refinancing
  • Growth finance
  • The buyout of minority shareholders

 

How can tech companies access the right debt funds?

In its Alternative Lender Deal Tracker Spring 2019 report, Deloitte noted: “The private debt market can be overwhelming, with numerous complex loan options offered to borrowers.”

To find the right private debt fund, and structure the right private debt finance deal consider talking to a specialist private debt finance advisory firm.

It is in a specialist private debt finance advisor’s interests to find and close debt finance deals with minimum strain on your time and resources.

And that’s what really matters.

 

And finally

If you’d like can help you to achieve your business goals, get in touch and we will set up a time to chat.

How to create liquidity without giving up control

A simple strategy you’re not using to create liquidity without giving up control

 

Do you want to extract value from your business to reward yourself for the hard work you’ve put into building it?

Picture this, you’re the founder of an owner-managed or VC backed tech company, and you’ve worked hard to move it into profitability. What’s more, you have a healthy cash flow.

You’d like to unlock part of the capital tied up in your business so that it can be reallocated to other projects, or for retirement planning.

But at the same time, you do not want to relinquish your controlling interest.

The good news is you can raise non-dilutive debt to recapitalise your business so that you can fund a partial equity release. 

In other words, you can raise debt to support a partial cash-out of your business.

Download our eBook Your blueprint for cashing out of your tech business to find out how.

 

So what makes raising debt to cash-out of a tech business so special?

 

If you think about what is important to you when raising any form of capital:

  • Time to set up a transaction and to access funds
  • Equity dilution
  • The cost of capital

Then raising debt provides the answer.

Recapitalising your business with debt so that you can fund a partial cash-out is a transaction that is relatively quick to set up.

When you raise debt, you retain a controlling interest in your business, because when you raise debt, you do not dilute equity.

And given the current economic climate, when you raise debt, you can take advantage of low-interest rates to get a low cost of capital.

 

That’s all very well, but I can’t imagine banks supporting cash-out transactions

 

And you’d be right.

But in direct contrast to conventional bank lending, private debt funds can provide more flexible loan structures, as well as unsecured options. 

What’s more, because many private debt funds focus on sector niches, they can provide less restrictive terms, including less stringent covenant packages.

 

How much equity can I release from my business?

The amount of equity you can release from your business depends on your:

  • Turnover (must be over £5m)
  • Profitability
  • Continued opportunities for growth
  • Strength of cash flow
  • How leveraged your business is

 

OK, I’m convinced… What do I do next?’

Download our ‘Blueprint for cashing out of your tech business eBook’.

Not only does it describe in detail how you can raise debt to extract value from your tech business, but it also sets out how you can use a partial cash-out to:

  • Buy out a departing shareholder
  • Reduce time-consuming admin by buying out small investors and tidying up your cap table
  • Take charge of your company’s financial destiny, by raising funds to buy out your VC
  • Get employee commitment to help your business to grow/handle succession changes, by raising funds to set up an Employee Ownership Trust
  • Raise money to fund an MBO

 

To sum up

If you want to unlock part of the value tied up in your business so that you can enjoy the perks of being a successful owner, without disrupting your business, then download our Blueprint to cashing out of your tech business.

And if you need more guidance about your options for cashing out of your tech business, get in touch.

How to buy out small shareholders

Are too many small shareholders causing you an administrative headache? 

It’s a familiar problem for fast-growing tech companies. To begin with, you go out of your way to attract small investors. They give you much-needed money. 

In exchange, you give them a minuscule amount of equity as compensation. It’s a win-win situation.

The problem arises when you end up with lots and lots of small shareholders. Because the more shareholders you have in your cap table, the more difficult it becomes to collect their signatures. 

Worse still, the more difficult it is for you to execute decisions.

If this sounds like you, then please feel reassured that there is a solution.

You see, I’ve been there.  At first, I thought my only option would be to enter into some tricky negotiations to buy out my minuscule shareholders.

The good news is, after much exhaustive research, I learnt that I could <raise debt to fund a partial cash-out> of my business. And that I could use the funds raised to clean up my cap table.

That’s why I wrote A Blueprint to cashing out of your tech business, an eBook that explains this little known way for companies that do not have cash in the bank to buy out their longtail investors.

Download Your blueprint to cashing out of your tech business here

Blueprint to cashing out of your tech business

 

Here are five reasons why you should read this eBook.

 

  1. You’ll learn how you can unlock capital tied up in your business

Also, different scenarios in which tech companies like yours have obtained private debt to give them liquidity without having to give up control.

 

  1. Key features of private debt transactions

You’ll learn what private debt is and how it came about, also, what makes it attractive to tech companies. And most interestingly, the advantages of raising private debt over bank debt.

 

  1. How to get advice about partially cashing out of your business

You’ll learn about the differences between specialist advisors and their areas of expertise.

 

  1. What to consider in regards to funding

You’ll learn how to develop a good story so that you can convince your potential lender that the rewards of recapitalising your business with private debt outweigh the risks.

Your blueprint for cashing out of your tech business

Introducing our free eBook: Your blueprint for cashing-out of your tech business

What if you could extract money from your tech business and reallocate it to other projects?

Think about it for a moment. Since founding your tech business, you’ve built up significant equity value. You’re not publicly listed, but would like to ‘take some chips off the table.’

OK, I know what you’re thinking. You worry about the effect cashing-out of your business will have on your company

Because, as a limited company, your assets belong to your business as opposed to you, the founder.

What’s more, you’re afraid that releasing equity will mean giving up control.

So what’s the solution?

To create liquidity for new and existing stakeholders, without giving up control, you can take advantage of low-interest rates and raise private debt. 

Our new eBook ‘Your blueprint for cashing-out of your tech business explains exactly how this works.

Download our new eBook, Your blueprint for cashing-out of your tech business.

 

What’s the catch?

 

As long as your company is not overleveraged, is cash-flow positive, and you can pay back the loan. Debt finance is an ideal instrument for recapitalising a business to create liquidity.

 

Download our Blueprint for cashing-out of your tech business‘ eBook to get answers to such questions as:

 

  1. How can I unlock some of the capital in my company to reward myself for the hard work I’ve put into it?

Learn how a partial cash-out can help you to fund large purchases, de-risk and re-balance your portfolio.

 

  1. How can I buy out a departing shareholder?

Have a shareholder departing due to retirement, moving on to another venture or moving on due to an acquisition? Learn how a debt leveraged share buyback allows a shareholder to cash out and exit the business.

 

  1. How can I reduce time-consuming admin?

Make doing business easier. Learn how you can use private debt to fund a partial cash-out of your business to buy out your longtail investors and tidy up your cap table.

 

  1. How can I take charge of my company’s financial destiny?

You’ve grown your business, and it is cash sufficient. You’re not planning on going public, exiting via a trade sale or indeed raising more money. Learn how a debt leveraged partial cash-out can help you to buy out your VC.

 

  1. I’d like to get employee commitment to help my business to grow/handle successions changes. How can I fund an EOT?

Learn how a debt leveraged partial cash-out releases capital that you can use to help fund an Employee Ownership Trust.

 

  1. How can I raise money to fund an MBO?

Do you need to raise money to acquire a majority stake from founders and other shareholders? Learn how private debt finance gives you access to significant loan amounts, without diluting equity.

 

To sum up

If you’re a CEO of a tech business that’s not publicly listed, at some point you will find yourself in a position where you need to take money out of your business.

For this reason, download our Blueprint to cashing out of your tech business and file it in your eBook library.

And if you need more guidance about your options for cashing out of your tech business, get in touch.

[Private debt for M&A datasheet] Looking for ways to fund your next acquisition?

Ifti – Founding Director of Fuse3

You know you need flexible funding to enable you to execute a time-sensitive transaction such as a merger or an acquisition.

But you also know that because of the nature of your tech business model – high in intellectual property and low in significant tangible assets, conventional lenders see you as a risk.

Sound familiar?

I’ve struggled with this problem in the past, too, when I set up and grew a B2G energy efficiency tech business. 

So what was the solution? 

Much research led me to the private debt market. Here I found lenders who actually understood my business and who were willing to support my growth by acquisition plans.

My experiences led me to found Fuse Three. Moreover, they’ve led me to create a Private Debt for M&A datasheet, designed to make you aware of another and more suitable funding option from which to choose. 

 

Key takeaways from this private debt for M&A datasheet

Our private debt for mergers and acquisitions datasheet sets out:

  • Why more and more tech businesses use non-dilutive, flexible private debt finance to grow and scale their tech businesses
  • How private debt finance for mergers and acquisitions works
  • How private debt finance differs from conventional debt lending
  • A mini case study showing how private debt for mergers and acquisitions works in practice

 

Why download my private debt for mergers and acquisitions datasheet

Over the last 15 years, I’ve started two companies. Sold one. Bought two and completed over 120 debt transactions.

Therefore, I’d like to share with you what I’ve learned. In particular, I’d like to make sure you’re aware of a fresh new approach to M&A funding, more suited to your business model and growth plans.

Click the datasheet image below to download as a pdf

M&A Datasheet

And finally

Of course, if you would like a little more guidance about funding options when planning your mergers and acquisitions strategy, then drop me a line, and we’ll set up a time to chat.