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Australian Small Scale Offerings Board The Do’s and Don’ts of Capital Raising

Australian Small Scale Offerings Board The Do’s and Don’ts of Capital Raising. November 2010. A background: Tauro Capital and ASSOB. The Do’s: Great Marketing Materials. The Offer Document Aim to be better than a prospectus Have the document professionally designed

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Australian Small Scale Offerings Board The Do’s and Don’ts of Capital Raising

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  1. Australian Small Scale Offerings BoardThe Do’s and Don’ts of Capital Raising November 2010

  2. A background:Tauro Capital and ASSOB

  3. The Do’s:Great Marketing Materials • The Offer Document • Aim to be better than a prospectus • Have the document professionally designed • Use hero pages to tell the story • Use market analytics to create a value proposition • Back up market analysis with industry research • Analyse the competitive landscape • Who are the your competitors and why are you better? • Include detailed financials with analysis of three sensitivities

  4. hero pages can be used to give investors a quick understanding of the opportunity • hero pages

  5. The Do’s:Great Marketing Materials • The Movie • A professional movie is a must have • It should clearly set out: • The business model, and how it works • How the business makes money • Growth drivers and market dynamics • ‘The offer’ • Who are the people behind this business

  6. The Do’s:Distributing the Offer Distributing the offer is central to the success of a capital raising. But remember... • At all times be compliant with the class order • All documents need to be signed off by both the client and the legal advisors • To build redundancies into the process • Funds come from a variety of sources:

  7. The Do’s:A Good Client Relationship Consequences of breach Termination by Tauro De-prioritised Legal action • The Golden Rules • Respect each other • Trust each other • Like each other • Talk honestly, openly and often • Everyone needs to be committed

  8. The Do’s:A Good Client Relationship • Watch out for: • “Blamers” • Porky Pies • Double Dealings • Divided Boards • Dysfunctional Management

  9. The Do’s:The Financials • Forecasts • Forecasts need to be driver based, bottom up and dynamic • If not, refer to FinAnalytics • The client should be able to present: • Profit and loss statement • Cash flow • Balance sheet • If not prepared to commit to proper forecasting  terminate! • Valuation • 2 – 3 x EBIT maximum • 3 years maximum • Less than $10 million valuation always • Better to give a little more away and get the job done than get stranded • Be tough!

  10. The Do’s:The Financials

  11. The Do’s:The Financials • Watch out for... • No “contingency” • Ask for 20% more than you think you need • Working capital movements • CAPEX • Optimism with respect to revenues

  12. The Do’s:Momentum & Tension • Momentum = forward movement and progression • Tension = cost of delaying investment decisions – the fear of missing out • Regular news announcements • Strategic decisions – going ‘live’ • VIP for friends, family and Tauro database • ‘Live’ with round 1 filled

  13. The Do’s:An Attractive Offer • Unattractive: • Variation of existing product or service • ‘Following the leader’ • Weak or underdeveloped brand • “3 stooges” • Weak or no sustainable competitive advantage • Complicated product/service offering • No customers • “Blue Sky” • “Mum thinks I’m great” • No news, no media • Attractive: • Unique product or service • 1st to market • Powerful brand • Independent, credible and capable board and management • Barriers to entry (IP etc) • Simple to understand -1 product • Proven demand • Tangible rather than intangible • 3rd party endorsement • News and exposure

  14. The Don’ts: Poor Corporate Governance • Danger Areas: • Management who write their own contracts • No independent directors • Inflated salaries not benchmarked • Poorly structured incentives • No board oversight of major decisions • War between boards and CEOs • Private company culture: • Non compliance • Quick decisions on major issues • Lack of understanding of shareholder value • No continuous disclosure

  15. The Don’ts: Fast Thinking • Danger Areas: • “No we don’t need to accept oversubscriptions” • “We don’t want to give up more than 15% of the Company” • “We won’t discount our shares” • “Lets just see how we go before we - • engage an investor relations advisor” • produce a movie” • look at our branding” • set up a website” • “We want to use our own – • graphic designer” • lawyer“ • media advisor”

  16. The Don’ts: Incompetence • Financial • Tax issues • Foreign exchange considerations overlooked • Lack of budgeting • Legal • Disregard of the class order • Commercial • Tanking in “crunch meetings” • Missing prospective investors • Lacking business common sense • Failure to deliver on a promise • Failure to respond to issues as they arise

  17. Contact us Simon WardChris Pattenden Managing DirectorAssociate Tauro Capital Partners Tauro Capital Partners Level 8, 410 Collins Street Level 8, 410 Collins Street Melbourne, VIC 3000 Melbourne, VIC 3000 Ph: (03) 8602 8888 Ph: (03) 8602 8888 Fax: (03) 8602 8899 Fax: (03) 8602 8899 Mobile: 0422 380 810 Mobile: 0413 595 749 Email: sward@taurocapital.com.au Email: cpattenden@taurocapital.com.au Web: www.taurocapital.com.au Web: www.taurocapital.com.au

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