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The Lifecycle of a SPAC

A SPAC goes through various steps and stages throughout its lifecycle. This post outlines the steps from pre-IPO through business combination.

The Stages of the SPAC Process

1: Prospectus Filing

The first stage in the SPAC lifecycle is the prospectus filing. This filing includes disclosure of the terms and structure of the SPAC offering and the target industry or segment focus of the SPAC.

2: IPO Marketing

During the IPO marketing stage, the underwriter arranges the roadshow, for the sponsor group to present to potential IPO investors. This roadshow is less extensive than that of a traditional IPO.

3: IPO Pricing

Today’s SPACs are based on a number of standard characteristics. One of these characteristics is the IPO pricing. The IPO units are priced at $10.

Learn more about SPACs

Download our SPAC Sponsor Handbook ►

Download our SPAC M&A Handbook ►

4: Announcement

At this stage, the SPAC management signs a Definitive Merger Agreement for a Business Combination with an operating business and announces the transaction.

5: Proxy Filing

After a Definitive Merger Agreement is signed and the business combination is announced, the SPAC files a Proxy Filing with the SEC disclosing the terms of the merger and seeking stockholder approval.

6: Stockholder Marketing

After filing the Proxy Filing, the SPAC management and SPAC IPO underwriters market the proposed transaction to the SPAC stockholders and other investors.

7: Closing or Liquidation

If the closing conditions are met, the Business Combination is closed. If not, the SPAC liquidates and returns the funds to stockholders.

The Basics of Mezzanine Finance

Quick Facts

Usage

Mezzanine Finance is generally used in combination with an acquisition, restructuring, or other transactions, to bridge the gap between the total purchase price and the equity and senior debt that’s available.

Costs

High interest rates, mid teens up to the low twenties, including an equity component

Term

3-5 years, often with yield protection

Seeking Mezzanine Finance? Let’s discuss how we can help. ►

Overview

Mezzanine Finance is indebtedness that’s junior to the senior indebtedness but is senior to equity. Mezzanine Finance is usually employed in connection with transactions where senior lenders won’t provide the full amount of financing, and there’s a gap between the amount of equity and senior that can be provided and the ultimate purchase price.

Mezzanine Finance is characterized by high interest rates, from the mid teens up to the low twenties, including an equity component generally in the form of warrants or stock.

The term is typically three to five years in duration. Many mezzanine loans come with what’s known as yield protection which provides that during the first several years it’s not permitted to be repaid unless the full amount of interest that would otherwise be payable during that period of time is also paid with prepayment.

Mezzanine Finance is ordinarily used in the context of transactions such as mergers or acquisitions, restructurings, or other transactions to bridge the gap between the total purchase price and the equity and senior debt that’s available.

There are many mezzanine firms, which range from family offices to private equity related firms and specialty credit funds. They are all characterized by those higher interest rates and the same types of provisions and equity coverage.

Let’s discuss how we can assist you with your Mezzanine Finance. Get in touch with our team below.

Increasing Your Chances of Raising Capital

Preparing for a liquidity event or capital raise is a pivotal moment in a company’s journey. Whether you’re seeking investment, planning a merger, or structuring a public offering, the key to success lies in thorough preparation and strategic decision-making. Investors and lenders want confidence that their capital is in good hands, and this requires more than just a compelling product or service—it demands a well-thought-out plan, a realistic valuation, and a seasoned team to execute the vision.

How to Increase Your Chances of Raising Capital

Planned Liquidity Event

A liquidity event is an event in which the shareholders of a company receive the opportunity to receive liquidity for their position in the company. Examples of liquidity events include:

  • Merger or acquisition
  • Public offering
  • Companies can also build in synthetic liquidity events for investors. For example, redemptions, interest, balloon dividend payments or extension payments.

A minority investor in a private company’s biggest fear is that the company will grow and become successful, but that they will continue to remain private with no liquidity events. If this was the case, the investor would have nothing to show for their stake in the company.

When a liquidity event is planned or structured for the near future, most investors are much more likely to invest in or lend to a company.

Realistic Valuation

You can spend weeks analyzing comparables for your company, but at the end of the day, your investors will determine your company’s value. Additionally, there are always ways to claw back dilution later on. We always say, the most important valuation is the one that get your company funded.

Prepare Company

Regardless of company stage, it’s very important to prepare your company prior to seeking funding. This includes preparing all of your corporate documents, preparing historical financials, preparing financial projections, and putting together an effective and aesthetically pleasing investor presentation.

Wondering what path is best for your company? We are always happy to discuss the funding and growth options available to a company. Get in touch with our team here ►

Experienced Team

When investors invest capital into a growing company, they are betting on the management team as much as, or more than, they are on the products or services. Knowing how to highlight your management team’s relevant experience can make the difference between an investor passing on an investment and putting in capital.

If your management team does not have very extensive or relevant past experience, it can help to add board members or other advisors who have great experience and can provide guidance.

Personal Relationships

Our approach depends upon accessing our personal relationships. Our experience is that personal relationships are far more likely to spend the time reviewing the opportunity, and more likely to invest.

Let’s discuss how our team can help you raise the capital you need. Get in touch with us below.

10 Questions to Answer Before Approaching Investors

Potential investors will have lots of questions for your company.

Prior to approaching investors, you should be able to answer all of these questions.

What is your business model/how is your company going to make money?

While it is important to focus on your product/service and acquiring customers, it is just as important to figure out your business model. How is your company going to charge for its product or service? Are you selling to the end consumers or to suppliers and other businesses?

Who is your target market?

Knowing who your ideal customer is will help your company focus its marketing and sales efforts.

Who are your competitors?

Almost every company has competitors. You should be able to discuss each of the competitors in your company’s pitch deck or investor marketing materials.

What sets your company apart from and makes your company better than the competition?

In addition to highlighting the competitors, you should be able to discuss the things that set your company apart, and why your company is more likely to succeed.

Wondering what is best for your company? We are always happy to discuss the funding and growth options available to a company. Get in touch with our team here ►

What are the risks and how does your business model minimize those risks?

Investors understand that every company faces risks. An investment without risk would provide little return.

It is important to be able to acknowledge the risks associated with your company, discuss the factors affecting those risks, and explain how your company plans to mitigate or minimize those risks.

What are your financial projections based on?

Anyone can put together a document showing exponential growth for their company over the next few years. What is far more important is the data behind that growth. Your company should prepare an extensive financial projection model that shows all the variables that drive growth.

For example, if you raise $3M, how would that affect your growth? What if you raised $6M instead?

What prior successes does your management team have?

With most early and growth stage investments, investors are betting on the company leadership just as much as the company itself.

What have the members of your management team done in the past that will help them succeed at this job? What skill sets do they bring to the table?

What is the use of the investment proceeds?

Investors want to make sure that their investments are going to good use. You should have a detailed use of proceeds ready to present to investors.

Will you have to raise more capital? If so, when and how much?

More capital raising = more dilution. Investors want to be able to factor into their investment decision their expected dilution over time.

What is your exit strategy?

In many cases, investors do not make anything on their investments until a company sells or goes public. Having a clear exit strategy will make an investor much more likely to invest.

Planning to raise capital? Let’s discuss how we can be helpful. Get in touch with our team below.

The Different Types of Capital Partners

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How to Build a Virtual Data Room

When contemplating financial, corporate, or M&A transactions, it is important to have a comprehensive data room in place. Any potential partners, whether investors, merger partners, or strategic partners will want to review all of the company’s documentation relating to their corporate structure, operations, and financings.

The Steps to Building a Virtual Data Room

Step 1: Find a Data Room Provider

There are many data room providers out there. Some of the important differentiating attributes to consider are:

  • Permissioning: most data room providers allow permissioning, with which you can grant different file access to different individuals. This can be useful if you have multiple types of potential partners accessing the data room at the same time. Most platforms can also limit file downloads so that certain people can only view files on the web, not download.
  • Auditability: it can be very helpful to know who is looking at what files, for how long, and how often. This can help you gauge the interest of potential partners. For example, partner A may tell you they are interested in pursuing a relationship but they’ve only looked at three files and only logged in once, while partner B may have logged in numerous times and looked at every file in the data room.
  • Pricing: pricing can vary dramatically between platforms. Some platforms charge flat fees while others charge per user.
  • User Interface: the user interface can affect how potential partners view the process of conducting due diligence on your company. If the interface is slow, it may cause potential partners to fatigue of the process. Additionally, it may be important to choose a platform where users granted access to the data room cannot see who else has been granted access.
  • Storage/File Size/File Type Limitations:some data room providers have very strict limitations on the file types and file sizes allowed as well as the total amount of storage available. It is important to understand these limitations prior to selecting a platform.

Here is a list of some of the top rated data room providers from G2 Crowd.

Step 2: Determine Data Room Structure

Having a cohesive data room folder structure can make the process of conducing due diligence much easier. This is the structure we use for our clients’ data rooms:

  • Corporate Documents and Corporate Matters
  • Securities and Securities Matters
  • Financing Documents
  • Properties/Leases/Insurance
  • Intellectual Property; Rights and Permits
  • Other Contracts/Agreements
  • Products and Inventories
  • Regulatory Documents/Litigation
  • Employees and Consultants
  • Financial Information
  • Environmental Matters
  • Miscellaneous

Building a data room? Download our full due diligence list here. This due diligence list is in the form generally used by investment banks, private equity firms, venture capital firms, family offices, strategic partners, and M&A partners.

Step 3: Upload and Organize Files

When uploading files, you should rename files so the user knows what the file is without having to review it. For example, documents with names like “scan” and dates should be renamed to the actual file type. Additionally, consistent filing nomenclature and format should be used.

Text-based documents should be uploaded as PDFs which makes them easier to view. Financial documents should be uploaded as Excel files when applicable. This allows data room users to manipulate numbers to see how changing variables affects financials.

Step 4: Grant and Monitor Access

Once your data room is built, you are ready to grant access to users. Make sure you pay close attention to the permission settings for each user.

If your platform has auditability features, check frequently to see how active users are and what files they are viewing most. If you see that many users are accessing the same files multiple times, these may be critical files or they may have issues.

Let’s discuss how we can guide you through your transaction. Get in touch with our team below.

Raising Capital: Frequently Asked Questions

Whether you’re funding expansion, developing new products, or stabilizing cash flow, the timing and strategy behind raising capital can significantly impact your company’s trajectory. However, there’s no universal answer to questions like when to raise capital, how much to raise, or which investors to approach. The right decision depends on your business’s unique goals, stage, and financial needs.

In this blog, we’ll break down the key considerations for raising capital, helping you evaluate when the time is right and how to prepare. From determining your company’s valuation to choosing the best capital partners, this guide will provide actionable insights to set you up for a successful capital raise. Whether you’re a startup founder or a seasoned executive, understanding these principles can make the difference between closing the funding you need and falling short. Let’s explore everything you need to know to raise capital with confidence and clarity.

The most frequently asked questions by companies raising capital

When is the right time to raise capital?

There is no single right answer to this question. Some companies may be raising capital for growth while others may be raising capital to stay in business.

Ideally, a company should raise capital when that injection of funds will allow them to significantly increase the company’s valuation and growth. If a company keeps raising capital without increasing the valuation, the founders and existing equity holders will be increasingly diluted and could end up owning very little of their company.

How should we value our company?

A company’s valuation should be based on comparable companies. One can find similar companies with similar transactions in the past and garner revenue and EBITDA multiples from those transactions.

For example, there are many third party data services like PitchBook that provide valuation metrics for different industries. You can also research public companies in the same industry and value your company based on their enterprise value/revenue multiple. It is important to note that privately held companies tend to trade at a discount to publicly held companies.

Some factors that affect valuation multiples are: growth rate, profitability, and debt.

We say that the most important valuation is the one that gets your company funded. There are ways to allow management to earn back some of the dilution over time through methods like option plans and claw backs.

How much capital should we raise?

The easiest answer to this question is as much as you need. You don’t want to raise so much that you are giving away more equity or taking on more debt than necessary. On the other hand, you do not want to constantly worry about capital, and, as a result, be distracted from operating at fully capacity.

What types of investors should we seek?

Different types of investors provide different value to companies. For example, Venture Capital and Private Equity investors tend to be more hands on than Family Office investors.

If your company is looking for significant guidance as well as capital, venture capital and private equity investors might be the right partners. The downside of the guidance is that it comes with increased control over the company’s operations.

Family office investors tend to have many investments and often run their own businesses as well. They are generally less interested in being involved in a company’s operations and are more interested in being passive investors.

Different types of investors are also interested in different sized companies.

Download our report Who is the Right Capital Partner ►

Wondering what is best for your company? We are always happy to discuss the funding and growth options available to a company. Get in touch with our team here ►.

How many investors should we approach?

It’s always better to approach a number of investors. We like to say, “it’s not closed until it’s closed”. Approaching multiple investors may also get you different term sheets, some with better terms than others.

Even if your company prefers one investor or another, there is usually not a reason to reject an investor until the funds are in your bank account.

Should we raise debt or equity?

There is no simple answer to this question. Debt can be great when the increase in revenue or valuation from the additional funds is so great that paying back the debt won’t be an issue for the company. Debt financing can also be great to finance receivables, purchase equipment, finance a purchase order, or to finance an acquisition.

Equity financing is often preferred by companies because there is no need to pay back the investor. Equity financing does however come with a much greater amount of control. Equity holders are also diluted by bringing in additional equity capital, which may not be preferable if an acquisition or exit is in sight.

Equity financing is also used when a company has existing debt or there is something preventing them from taking in additional debt financing.

Investors often structure their investments as a hybrid between the two, such as convertible notes. These types of structures protect the investor in the event of failure, but allow them to take advantage of the upside in the event of success.

What value does ClearThink Capital provide to companies raising capital?

When we work with companies, we bring our decades of capital raising experience to the table. We work as our client’s advisor and assist them by:

  • Conducting a full due diligence to remediate any potential issues prior to meeting with investors
  • Introducing the company to potential capital partners, including investment banking firms
  • Structuring the transaction to be client advantageous
  • Advising as to transaction terms
  • Preparing the transaction related documentation

Do we need an audit?

While some investors will require an audit, many will not. Venture capital, private equity, and strategic investors are more likely to require an audit, while family offices are less likely.

Do I need to put together a data room?

Almost all investors will require the company to put together a data room with all their corporate documents. It is best to put the data room in place prior to starting the capital raising process.

Download our due diligence list here ►

How long does the process take?

The amount of time it takes to raise capital can vary dramatically, but the timing is mostly dependent on the company. To ensure the quickest capital raising process, make sure to:

  • Create and populate a data room prior to beginning the process
  • Respond quickly to document/data requests from investors
  • For most companies, the capital raising process takes three to six months.

Should I raise capital through a crowdfunding platform?

While platforms like Kickstarter and Indiegogo can be great for crowdfunding products, we generally advise against raising capital through equity crowd funding. In 2018, the average crowd funding investor invested $741. As a result, companies tend to have thousands investors to manage.

Additionally, having such a large number of investors turns off most institutional investors, and will make it much more difficult to raise large amounts of capital in the future.

Taking a look at the statistics from 2018 crowd fundings:

$161K Average funds raised per unique offering

61% Successful offerings

$741 Average investment per investor

5 Things To Ask Potential Investors

When taking in a capital partner, people tend to focus most on the amount of money the partner is investing into the company and the valuation. While these are both important things to consider, there are many other things a company should ask potential capital partners.

Ask your potential investors these five questions

How involved do you like to be in your portfolio companies?

A capital partner’s involvement in a company can vary dramatically. Venture and private equity firms tend to be highly governance-focused, which means that they impose substantial limitations on management autonomy and have substantial additional consent and other rights. Some capital partners want to know every detail of a company’s business with updates multiple times a week, while others want an update once a quarter.

Our experience has been that family offices generally tend be less focused upon governance and want to be kept current on company progress, but prefer not to assume operational or board roles within their investments.

Generally, we prefer to match companies with capital partners that do not desire to be actively involved in the company’s operations. When we work with a company, we do so because we believe that the company’s management team has the ability to lead the company to success. Partners should be able to provide advice when requested, but should not interfere with a company’s ability to execute.

What is your history of conversion vs repayment?

Many capital partners prefer to structure growth capital transactions as convertible notes, rather than straight equity. A convertible note is debt with the option on the part of the investor to convert the debt into equity.

Investors look at convertible notes two different ways. The first group looks at convertible notes as essentially an equity investment with protections in the case that things should not go as planned. The second group look at convertible notes as a loan to the company, with the ability to take advantage of the upside if they should choose to do so.

It is important to understand a capital partner’s plans relating to conversion so as to give the company the opportunity to plan for repayment or equity dilution.

How important is a liquidity event and when?

Liquidity events are events in which company holders have the ability to sell or otherwise capitalize on the value escalation of their position in the company. The two most common liquidity events are public offerings and acquisitions, although contractual liquidity events, such as redemptions, as common as well.

Depending on the capital partner, a realistic plan for a liquidity event may be very important. From the investor’s perspective, their biggest fear is becoming a captive minority holder of equity in your company.

For example, an investor can purchase equity in a company, only to have the management team pay themselves higher and higher salaries, with no plan for a liquidity event. As a result, the capital partner is left with a lost investment and no return.

Do you engage in a lot of litigation?

It is not uncommon for emerging and middle market companies to experience delays when either repaying debt obligations or paying redemption prices. Growth requires substantial capital and many companies inaccurately budget for these events.

Most capital partners are understanding, to a degree, and will afford their portfolio companies leniency as to timing; others have no tolerance for delays and are quick to assert their rights. While many companies would accuse the latter group of “not being team players”, it is an unfair characterization as investors are entities to the benefit of the terms of their investment.

Understanding the character of your capital partners and their history, as well as proper planning and budgeting, can spare you a great deal of angst when payment deadlines are approaching.

What management positions have you held and boards of directors have you served on?

An investor’s past experience can be very valuable to a company. Many times, capital partners have past experience running and growing their own companies or companies.

Whether or not their past experience is in a similar industry to the company in which they are investing, having someone else with experience on a company’s team can help with strategic decisions. An investor can also provide access to influencers, clients, supply chain partners, and additional capital.

Wondering what is best for your company? We are always happy to discuss the funding and growth options available to a company. Get in touch with our team below.

Can You Finance Your Accounts Receivables?

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The Venture Capital Reality: Is It The Right Path To Capital?

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