Capital Raising Tips

Raising Capital is one of the largest hurdles development stage and microcap companies have to overcome. One of the most common funding tools they have at their disposal is Private Placement Funding for Raising Capital. Hedge Funds have funding many microcap public and private companies billions of dollars over the years in private placement funding.

Another tool they can use is the Reverse Merger. This transaction is done by a private company reverse merging into a public "shell" company that no longer is operational. The shell has basically gone out of business because its business model didn't work and it ran out of funds. Since it is a public entity, however, its stock symbol still exists and it still has shareholders. Unfortunately, the stock probably rarely trades.

Management of the public shell usually looks for a funding group that wants to buy a controlling interest in the shell and reverse merge a private company into the public shell. One group that helps private companies with such a transaction can be found at Reverse Merger Funding. They are networked with a number of hedge funds, brokerage firms and investment bankers.

These types of funding transactions have become very popular over the years. A Reverse Merger, if done properly can provide a quicker alternative to going public and raising needed funding than some other to access the capital markets.

On January 29, 2009, two senators proposed The Hedge Fund Transparency Act. Hopefully, this Act will not force small hedge funds out of business or reduce the number of small hedge funds from forming in the future. Many small hedge funds act as a hybrid of a hedge fund and private equity firm. Reducing the number of small hedge fund managers reduces the number of smaller transactions that get funded each year.

Small businesses need to be formed and flourish. Small business are a major part of our economy, so hopefully, The Hedge Fund Transparency Act will not hinder this part of our economic growth.

Most companies that use a securities exemption to sell their securities for raising capital are either private companies that will likely seek a public listing in the near future or are already public and listed on the over the counter Pink Sheet market.

Regulation D is probably the most commonly used securities exemption for raising capital. There are a few different financing structures that companies can use to sell their securities in a Regulation D private placement offering.

They can structure the offering as a simple common stock offering; a convertible preferred offering in which the preferred stock is convertible into common stock at a fixed price; or a unit offering in which common stock or convertible preferred stock is sold together with warrants.

As you can see, Reverse Mergers, Regulation D private placements and Regulation A can be very useful to private companies that are in the process of raising capital to grow and expand.

It is important to give careful and serious consideration to the structure of your offering. Take into account the amount you intend to raise and what your use of proceeds will be. Also, think a few steps ahead, like in a chess game, to see what you may need to raise in subsequent rounds of financing. What will your likely use of proceeds be at that time? Be sure to obtain competent legal advice before undertaking to raise capital through Regulation A, Regulation D or any other offering of securities. There are numerous regulatory requirements such as state "blue sky laws" and other state and federal regulations that must be complied with.


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Alvin Donovan, Institutional investor partner substantial funds, bestselling author, hedge fund industry pioneer, completed several billion dollars transactions, consultant to fortune 500 companies, faculty member most of the world's largest management institutes, raised over USD$1.5 billion for funds

http://www.alvindonovan.com