How Most Financial Advisors Raise Capital
The typical approach to raise capital by most financial advisors who work with established growing companies is to charge an upfront retainer, and then earn compensation upon funding (called a ‘success fee.’) Success fees can vary significantly but often range between 2% and 10% of the capital raised. While bankers rationalize it is ‘success based’ the process can be very expensive easily costing $500,000 or much more for the company seeking the financing. Even more important, this approach can lead to other drawbacks or conflicts that can work against the best interests of the client. These conflicts to raise capital can include: fee structures that pay much more for raising equity than debt, receiving equity ownership in a client based on the valuation of the investment, long (typically 2 year) ‘lock up’ or exclusivity periods, and the acceptance of finder’s fees from the funding institutions. Taken collectively, these common practices should make clients wonder whether the financing opportunities presented by the success-based advisor are really best for the client or the broker.
How We Raise Capital
Believing there is a better way and to remain independent, Napper Investments raises capital using our own capital raising process that differs significantly from investment bankers and capital brokers in two, key ways.
We raise capital strictly on a fee-only basis.
Rather than seeking large success fees to raise capital, and to be fair to our clients of all sizes, we choose to work on a simple, fee-only basis. This removes any economic incentive to recommend one financing solution or provider over another. We also use reasonable rates that are comparable to working with an outsource CFO or middle market CPA or law firm. This simple approach drastically reduces the cost to clients to raise capital, and removes all conflicts of interest or potential for ‘self dealing.’
To achieve consistent results, we work in 3 phases in order to raise capital for our clients.
Develop Financial Strategy and Plan- We start each engagement by getting to know the client and understanding their business and strategies. Once we have done that, we immediately create a financial plan. Once we have created that plan, and it is reviewed by the client, we share the plan on a ‘no-names’ basis with a few financial institutions, we believe will likely want to fund our client’s business. Our goal is to identify interested institutions very early in the process (ideally in the first couple of weeks). By doing so, we are able to quickly and cost effectively demonstrate to our client that we can deliver them interested funding sources. Our goal is to have our clients financing need in front of interested funding sources at an engagement cost that is less than the retainer charged by most investment bankers and capital brokers.
Access Capital Markets - Once we have successfully completed the financial strategy and planning phase, we then (with our client’s permission) access the capital markets in a systematic and effective way. To do that, we finalize a company business plan, then we distribute that business plan to not only those firms that expressed interest earlier in our process, but many others as well. By doing it this way, we enable our clients to ‘play the numbers’ and create competition for funding which can save them millions in financing costs. (As the e-Loan slogan says, ”When banks compete, you win.”)
Analyze, Adjust, Achieve - After funding is complete, we also look to help our clients achieve their ultimate goals. With their permission, we help them further use ‘finance’ not only to fund their initiatives but to also make better decisions, and adjust their plans as their business and markets change.
This approach, which is completely unique to Napper Investments, has worked consistently well. Since implementing this process a few years ago, we have delivered financing offers each time we have accessed the capital markets. By combining a simple, fee-only approach to raise capital with our proven consulting process, we are able to consistently help clients raise capital with a level of quality and cost that is unmatched by other advisors.
See our Page on our Regulation D Services.