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Staying private longer? Private debt can provide support for you

Staying private longer? Private debt can provide support for you

Have you heard that more and more CEOs & CFOs of maturing businesses are considering alternatives to IPO?

 

One of the reasons why late-stage companies decide to stay private for longer is because of the increase in the availability of private capital. 

 

According to a McKinsey Study titled “Grow Fast or Die Slowly“, the average age of technology companies that went public in 2014 was 11 years, compared to four in 1999. 

 

The same report noted that private funding rounds generated several decacorns ($10 billion in value ) and unicorns.

 

Similarly, in a report ‘On the state of venture capital’, Goldman Sachs suggests companies are better skipping IPOs and staying private. It noted that the biggest newly public companies would’ve created more value for themselves if they stayed private. Because the actual value they earned in the public market significantly lagged.

 

If you’re considering whether or not to keep your tech company private, and private capital options available, here’s what you need to know.

 

Why IPO?

 

You’re a maturing tech company with a disruptive product/service, meaningful revenues and operate in a large market with room to grow.

Perhaps you need funds to see off the competition. Alternatively, to maintain your position in the market-place.

When you IPO, you get instant access to large amounts of capital.

Elsewhere, existing shareholders wishing to exit their investment may push your company to IPO.

Alternatively, you’ve hit shareholder limits so your only other option to raise more capital is to go public.

 

What are the disadvantages of an IPO? 

 

In addition to the reported problems with post IPO valuations, many tech companies realise that public ownership comes at a price.

As a public company, you face constant pressure to report to a large group of shareholders. 

 

What are the benefits of remaining private?

 

First off, you can control your capital structure, choose your investors and reduce your dilution.

Also, you can minimise the time your exec team spends on shareholder-facing activities.

Then you can retain the competitive advantage that comes from not disclosing business plans and finances. 

After that, you can focus on long-term strategy rather than short-term quarterly earnings.

Not to mention, you can pivot without consulting shareholders.

More importantly,  you can protect your company from a hostile takeover.

 

 How to raise the capital you need to stay private for longer

 

If you choose to stay private for longer, then you’ll need a new investment model.

If you need short term capital, but don’t want to give up equity, then taking out venture debt is a good alternative.

You see, private debt funds specialise in providing venture debt to late-stage tech companies. Transactions include:

 

Lines of credit

 

An open-ended revolving loan that gives you access to funds for as long as you need them. Private debt funds can use intellectual property as collateral for the loan.

 

Bridging finance

 

Gives you flexible growth capital so that when you are ready to IPO, you can do so quickly.

 

Refinancing debt

 

Releases funds, enabling existing stakeholders to exit, thus achieving more liquidity.

 

So it all adds up to this

 

An influx of private capital means maturing tech companies can choose to stay private for longer.

When deciding to access private capital, it pays to understand all the options, especially where specialist venture debt is concerned. 

A straight-talking and pragmatic debt advisory firm can guide you through the process of finding the right lender, structuring the most flexible transaction and closing the best and most cost effective deal.

I’m ready. Are you?

 

And finally

 

If you’d like to find out how private debt finance can help your maturing tech business to stay , drop me a line and we will set up a time to chat.