Raise Capital Operating Company

Generally speaking an operating company can access capital either through a Private Equity Placement and/or (IPO) Initial Public Offering. However, practically speaking it really will depend on the specifics of the company, the deal and investor "risk".

So what is the first step? Consider that there are a number of variables that really depend on the size of the company, profitability, needs and "what's the deal". For everyone, there is a point where you realize that what you must give up for added capital " is just not worth it". Unfortunately the process can be very annoying. I compare it to shopping for a car but a thousand times worse. To eliminate a great deal of the aggravation I suggest you consider doing the following.

The operating company which is soliciting capital should first do a preliminary securities offering document. Why? Because an operating company has several possible options available to it. However, you need to get the whole story fleshed out in a document so you can see how well it actually reads. Once the document is prepared the company can explore a Private Equity Placement or IPO depending on the strength of the document. In effect you pursue all possible avenues simultaneously through the document and chose which deal best suits your needs. Once you have completed the document it should be apparent what your best options are. I usually recommend a pre-Private Placement Memorandum as oppose to a business plan (see business plan v Private Placement Memorandum).

On a practical basis, the document will allow you to make a consistent presentation to any single investor or multiple groups of investors whether professional investors or small investors. You can also use it to inquire of any Broker/Dealer interest in potential underwriting. You should particularly note that Brokerage Firms generally require very large upfront deposits before taking on a deal. So presenting them with a Private Placement Memorandum, which has the legal assumption of truth can greatly reduce both your upfront costs and get you the best deal possible. The better the picture you present the more comfortable they feel. In the best circumstances, you could have multiple prospects willing to invest; putting you in the enviable position of playing one against the other.

In the case of an underwriting, you wish to minimize the upfront cash requested by the Broker/Dealer which easily could be $250,000-$500,000 or more and that might be with just a "best efforts" proposal. The better the presentation, the better the deal. Just $ .50 difference on a 1,000,000 share offering translates into a savings of $500,000 to you. So your first step is to prepare a quality presentation.

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