Equity investors play an important role in not only securing deals but with providing quick funding when unexpected financial deadlines occur. Banks, on the other hand, move slowly and their delays can affect the viability of a deal.
Competition molds people and markets into better shape physically, financially, and behaviorally. If you agree, then I recommend tapping into the mechanisms of competition by perfecting the process of securing capital. Specifically, find an alternative to your bankers and start dancing with more investors.
Remember, competition is your friend in a recovering market. If you cannot perform the functions required to secure diverse funding sources, then find assistance so that you can.
Preparing for the investor
The New Dance RulesBuilders must acknowledge that new ground rules have become glaringly obvious in the capital arena. My clients and I have endured endless disasters since 2007, running the gauntlet of equity deals, bank loans, and builder equity capital restructuring. This article is too short to explain why the capital landscape has changed, so trust me on this. I can refer you to many builders who will attest to these points:• Diversify your source of funds to three or more at all times.• Do not agree to syndicated lines of credit with two or three banks unless you are very sure of your terms and how the lead bank functions.
• Do not put all your operating capital in the same bank that is holding your loans.
Relying on winning that handshake deal after a round of golf won’t cut it these days for securing capital. This task requires preparing an investor package that will properly communicate your opportunity and capabilities to financiers. Have a leader—whether it is you or a collaborative effort with a funding professional—to help you create professional cash flows and projections. You must be able to prove with your own facts that your deal will produce the results you are promoting. Many of us know metrics in our heads, and we can rough out deals on napkins. But if you want a third party to jump in, formalize and backup your assumptions.
After producing a number of investor packages, my clients and I have been complimented most often on investor pack- ages that followed this outline:
Step, step, turn
Noelle Tarabulski is CEO of Builder Consulting Group of Lakewood, Colo., a management consulting firm dedicated to builders and developers since 1991. She can be reached at email@example.com.