Jonathan Rich, formerly of B. Riley and National Securities in New York City, explains how to choose the right investment bank or agent when deciding to raise capital or seek advisory help

Jonathan Rich

When a company has decided to pursue raising capital in support of its operating objectives, it is important that management has a clear objective in mind and a process that addresses their desired outcome in order to best ensure a successful result. While many firms rely simply upon their existing service providers or friends to make recommendations, it is vital for a company to research and as part of the process ask specific questions in order to ensure they are aligning with the best investment bank or agent specifically for them and their needs. Things to consider are:

A company must ensure that they interview multiple potential groups prior to selecting one in order to ensure they are aligned with the best partner for them, their specific needs, has the appropriate resources and fit. Many times, a company simply selects a partner that has been referred to them by a friend or trusted advisor because they know them or have done business with them previously (or in turn get referrals from them). While ultimately that may turn out to be the most appropriate partner, nothing is more important than having a robust exploration of groups to be able to compare and contrast capabilities and be in a position to make informed decisions. Speaking to at least 3-5 qualified firms will ensure that you have enough of a cross section so as to be in a position to understand what each brings potentially to a process.

Next, having each prospective firm listen to your story and in turn, present their firm’s capabilities are vital. A prospective firm should be able to clearly elaborate on why they are ideally suited to assist you by providing details about the firm’s strengths, individual prospective team members’ backgrounds, expertise in the particular product or service industry, who their investor base is and geographic areas of focus. They should also be able to clearly speak as to how they envision positioning the story to prospective investors, how that differs or compares to other peers, how they view your valuation on a preliminary basis and details around timing and deliverables needed to accomplish the proposed transaction.

The prospective partner should also be able to provide a list of successfully consummated transactions they have undertaken in the last 12-24 months on behalf of companies considered to be comparable to yours in terms of the type of transaction (ie public vs private, capital raising vs advisory, size of the raise or advisory transaction, etc.), size or stage of the company (if you are a start up or early stage company doing less than $1m in sales and they work with late stage large companies doing $100+m in revenue, etc.) and the industry in which it operates. The more similar that their successful transactions are to your specific company and needs, the more likely it is that you will have a positive outcome.

Last, there should be a clear discussion around and understanding of what the costs, expenses and fees of an undertaking can and will look like in addition to any other rights that the prospective partner will seek. While business terms can be negotiated, clearly understand the costs, timing and deliverables needed to undertake and consummate a transaction are vital.

As a seasoned former banker at B. Riley and National Securities for almost 30 years who worked with hundreds and hundreds of companies, Jonathan Rich of New York City believes that by following these plus many other steps as a foundation to a process, you will greatly enhance the likelihood for a successful outcome of an undertaken process.

Jonathan Craig Rich
Jonathan Craig Rich New York