Five Tips for Raising Capital Pre-IPO or Acquisition
Development-stage healthcare companies typically need to raise money every one to two years. As they grow, they typically attract larger and more varied forms of financing until the time comes for them to either be acquired or go public. Many companies will opt to run a dual-track strategy at such a time to maximize the value that has been created.
But what if the market isn’t quite ready for your IPO, as we saw throughout most of 2016? How can you keep your development engine running while waiting for the right market conditions to make your debut as a public company?
Well, throughout the past year, Westwicke helped a number of private companies raise money without going public, so I thought it might be useful to share some insights on how this was accomplished. Here are five ideas to help private companies raise money, while awaiting the right moment for an IPO:
1. Cast Your Net Far and Wide
Not surprisingly, the types of institutions that invest in near-public companies are a mixture of those who typically invest in private companies (venture capitalists) and the ones that typically invest in public companies such as healthcare mutual funds. For many funds, there are no hard and fast rules about which ones do and do not invest in near-public companies, so try and set up meetings with a wide variety of institutions. If an institution declines a meeting then it’s either because you’re at the wrong stage of your development, or perhaps they just don’t appreciate your investment thesis. By casting your net far and wide, you will build a map of favorable institutions and build relationships that can be of immediate use to you in the short term, or may prove useful at a point in the future.
2. Don’t Get Hung Up Looking for a Marquee Investor
Some advisors will tell you to try and bag a lead investor before you approach the wider pack. The argument here is that the lead investor or investors will add credibility to your story. The assumption will be that they will have conducted rigorous due diligence on your company and its prospects. But don’t focus your time solely on chatting to the “big boys” because it may be that in order to build a successful book, you need to proceed without a marquee name. In our experience it’s better to hedge your bets and talk to a wide variety of interested parties from the start.
3. Drum Up Insider Support
Nothing instills confidence in a new potential investor better than seeing that existing holders are putting in more money. Here, the assumption is that your existing shareholders are expressing confidence in your prospects as well as vouching for your ability to execute and deliver results. This was an especially important attribute for almost every company that successfully completed its IPO in 2016.
4. Dive In to the Process
Raising money requires arranging numerous meetings, having a credible plan for development and growth, effectively and passionately communicating your strategy, and finally, agreeing on a term sheet. The process requires an unwavering commitment of time and perseverance by your management team until you achieve success. Look at peer companies that have been through the process for additional ideas about funds that currently have an interest in participating in financings for pre-IPO companies. Ask investment banks for intros or advice on potential investors you may have overlooked. Remember that going through the financing process on your own will garner respect from the investment community but you must be prepared to put in the work alongside your legal counsel and those of your potential investors. The time commitment can be daunting but well worth the rewards of a successful capital raise.
5. Be Flexible
You may enter into a private financing with expectations of size, price, and structure. The funds you meet with may have entirely different ideas and eventually your term sheet will be shaped significantly by the thoughts of one or two major institutions. So long as the final terms are agreeable to all parties it shouldn’t matter how closely the final term sheet mirrors what you originally had in mind. Completing a financing is frequently vastly superior to the alternative, so stay flexible and maintain many simultaneous dialogues in order to get the best possible deal for your company.
The market for IPOs looks likely to be significantly better in 2017 than it was in 2016. So whether you’re planning an IPO or looking to raise money while staying private, Westwicke can help you assess and execute your options. If you’d like to discuss your investor relations needs further, just reach out.
ICR Westwicke is the largest healthcare focused investor relations firm in the country. We provide customized investor relations programs and independent capital markets advice to small and mid-cap healthcare companies.
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