Three Key Steps in Raising Capital to Fund Breweries

 

In our December 2014 newsletter, we outlined the various securities laws considerations for breweries and taprooms looking to raise money through a private placement offering. Now we turn our attention to the mechanics of actually approaching and securing commitments from investors. Below are a few thoughts on the money-raising process, based on recent client experiences.

Breaking the Process Down

Raising capital to fund a new concept is a complex process, but basically it involves three steps. First, you need a written presentation with which to approach investors and draw interest in your offering. Second, you need to identify would-be investors and make an introduction. Third, you need to present your offering to investors and secure contribution commitments.

Getting Ready – Knowing Your Numbers

Before reaching out to potential investors, you need to develop a written presentation. Your written materials can take one of several forms depending on applicable securities laws and the types of investors you are seeking. Often, the presentation is in the form of a private placement memorandum (PPM). A PPM generally includes a business plan, historic and pro forma financials, risk factors, management team overviews, and proposed use of proceeds. If permitted under the securities laws, an alternative, and less formal, set of documents may include a deck of PowerPoint slides, business plan, subscription agreement, and/or risk factors. An experienced securities law attorney can advise you on the form and content of your written materials for investors.

Regardless of the form your written materials take, what is perhaps most important to investors is that you know your numbers. You not only need to know how much initial capital is required, but you also need a solid and understandable pro forma analysis of your financials, including working capital, projected cash flows, margins, and net return to investors. While you will rely in part on your legal and financial advisors to prepare these materials, it is up to you to understand your numbers inside and out.

Finding the Money

People invest with – and in – people they know. The first question, therefore, is who do you know? The obvious starting point is preexisting relationships with family and friends that you think may have available cash and an interest and/or history of investing in small companies or similar ventures. While family and friends are certainly tier-one prospects, don’t stop there. Many entrepreneurs underestimate how many prospective investors they are acquainted with. In your network, you may know small business owners, corporate executives, high-net-worth families and individuals as well as professionals, including doctors, dentists, lawyers and accountants.

If your family, friends and network is somewhat limited, then you might consider taking advantage of some of the recent rules of the Securities Exchange Commission (SEC) that have liberalized the prohibition on general solicitation and general advertising in private placement offerings. Here again a securities law attorney can help guide you through the advantages and disadvantages of these various rules.

Securing a Commitment – Selling You

You make great beer. Your attorneys, accountants and other advisors have helped you produce a great set of documents to present to potential investors. But most investors do not commit to writing a check on the basis of your beer, your financial projections, or your PPM – they are investing in you. You cannot outsource your presentation. Investors want to hear from you as an individual. They want to hear your story, feel your passion, sense your commitment to making their hard-earned money succeed. Ultimately, people make a decision to invest based on a combination of emotion and logic. Your offering documents will bolster the logical rationale for investing by demonstrating your business acumen and ability to pick the right people to help make your business successful. It is your job to secure an emotional connection.

By Marcus Urlaub

Download the Spring 2015 Bar Examiner newsletter

About The Author

Marcus Urlaub

No Comments

Leave a Reply