When is the best time to raise capital?

My first answer would be yesterday. And I would do a follow up question, what for? Business School teaches it students that equity is a very expensive form of capital in relation to debt. Its dividends cannot be deducted from income. It is difficult to pay back, but achievable as a buy back. And of course it can change the composition of the Board of Directors. There are strategic advantages in raising private equity for many externalities can be derived from the process. The key advantage is to accelerate the company’s growth to achieve a leading position in the industry. Because the hurdles were minimal for market entry, as an example, Groupon sought capital for fast growth strategy that made it the leader in the industry and eased its IPO candidacy.
First, the purpose needs to be detailed – acquisitions, sales and marketing, infrastructure? Many leading Silicon Valley companies are now buying up smaller players to keep growing and consolidate its leading position in its market sector. Part of the pitch for capital raising is to expand through M&A with the purpose to add infrastructure or a division – with which I had direct experience – that keeps forging the company forward for more growth. And the cost of the capital had been less than the resulting growth from the M&A. In this instance, it does pay to seek capital for this important strategy.
Second, the company has to assess its position in the competitive environment. I recently met with a company that seeks to enter into the private sector. But after researching its competitive environment, the technology company has to raise enough capital to knock out its direct competitor. This specific direct competitor is already operating in 50 states, functional in 17 languages. Although this competitor has not seized 100% of the market, it is not far from achieving that marketing objective. Now the new company can be repositioned, narrow its market to a niche. However, the danger within the software industry (Remember Microsoft vs. WordPerfect/Lotus/Corel battles in which MS kept eating away at each leader?), competition can be brutal. An established leader like MS can easily knock out competition. Software teams can easily be put together with an experienced marketing staff to lock out new entrants. So the new entrant has to raise enough capital in anticipation of the battle to come. How much? Enough to hire marketing teams to cover domestic and international markets. And more capital to build development teams to react quickly to the established player’s moves.
Anyway, I needed to address quickly that organic growth is great – if you have no competition, you have considerable working capital to finance quick growth, you do not anticipate to expand and grow rapidly. But, more often than not, that is not the case. It always makes sense to grow and handle competition effectively, and there is no better tool than sufficient capital.


About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP, jrzarco2001@yahoo.com, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy. http://www.docstoc.com/video/89135472/make-your-business-an-international-presence; http://www.youtube.com/watch?v=fx5gijf3yoc For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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