Investment Funding in the New Decade

The one major difference between a variable pricing offer which is often referred to as an “Equity Line” or “Special Purpose Placement (“SPP”)” and a conventional raise which is often referred to as “Fixed Pricing” is that an SPP provides you with absolute certainty you shall get the cash you need.

Herewith are the procedures to obtain an SPP opportunity with standard, procedures, logistics and costs:

1. Pre qualification Template and Micro Summary:

This is a standard pro forma, which typically assesses financial performance and some basic financial parameters. Data embracing shareholding structure and stock trading metrics is also assessed.

2. Fund manager review:

One or more investment committee members will discuss with you your capital funding requirement and your business plan in detail.

3. Draft Term Sheet Issuance:

Paperwork describing the procedures of the funding:

i. Security type

ii. Structure

iii. Use of Proceeds

iv. Draw down mechanisms including;

a. Notice Periods

b. Pricing Periods

c. Settlement

d. Pricing

e. Discount Rate to VWAP

f. Percentage multiples on Draw down

4. Draft Term Sheet initialled by your company.

5. Definitive Documentation including subscription agreement issued by the fund:

The definitive documentation expands upon the draft Term Sheet, giving more detail and supplementary provisions, including but not limited to:

i. Representations

ii. Warranties

iii. Options

iv. Covenants, agreements and remedies

v. Arranging of a scrip loan is also customary at this stage to facilitate market liquidity and protection.

6. Fees and expenses:

With variable pricing there are not any pre payments involved. Normal commercial fees and expenses are charged only after your receipt of a formal written legally binding commitment from the Fund to provide the agreed finance.

At this point your company is required to pay Legal Fees of around USD $15,000, directly to the Fund?s lawyers, for the process of drawing up the documents associated with the provision of your facility.

Other fees that will be payable are

i. Success fee of 1% in cash and 5% in stock of the total facility.

ii. Commitment fee of 1.5% of the total facility, paid in cash or stock to the fund on the first draw-down or 12 months from date of signing the deal, whichever is the earlier.

iii. Drawdown management fee of 5% of each drawdown, deducted from the funds advanced, to manage the drawdown process.

The costs associated with this type of facility are significantly less than those associated with a conventional dilutive arrangement. Typically there is an upfront retainer plus legal and due diligence fees with no guarantee of success, followed by a 6% success fee for a placement at a 20% discount to the market.

Moreover- with a conventional raise there is no certainty you will get the cash. With your SPP you are certain to get the cash you need.

Significantly, your SPP facility carries inbuilt protection from abuse in the market pricing of the associated new share issue. Funny business can occur with a conventional raise.

This “Death Spiral” can occur when market forces perceive that there is no downside protection on either an alternative drawdown, or even a prospective placement.

Thus prospective placees and even other traders can sell stock down in advance of the drawdown pricing or the placement pricing and send your share price into oblivion.

Your SPP facility has unique features, which place a company priced floor to ensure that such aggressive practices cannot be used when your SPP facility is in place.

Additional services such as investment banking functions, road shows to institutions, organising of analysts to cover your stock, PR or any other functions are available various investment banking divisions.

Institutional investor partner substantial funds, bestselling author, hedge fund industry pioneer, completed several billion dollars transactions, consultant to fortune 500 companies, faculty member most of the world’s largest management institutes, raised over USD$1.5 billion for funds.

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