Growth Companies Benefit From Final Crowdfunding Rules

December 8th, 2015 | Posted by Sarah Jones in Guest Blogs - (Comments Off)

This week on NVTC’s blog, Alex Castelli of NVTC member CohnReznick shares how the SEC’s adoption of new crowdfunding rules could be a game changer for growth-focused businesses and investors.


The SEC’s adoption of new crowdfunding rules could be a game changer for growth-focused businesses and investors

On Oct. 30, 2015, the SEC approved final rules that permit companies to offer and sell securities through crowdfunding. The new rules provide another capital raising option for growth-oriented companies and offer additional options for investors who want to get in on the ground floor of in what could be a very successful business.

Benefits to Companies and Investors

Some of the key benefits of the SEC’s rules permitting crowdfunding or, simply put, the ability of companies to raise capital from the general public through the Internet are listed below.

  • Early-stage and growth companies that may be unable or unwilling to raise capital from institutional or private investors have access to another source of capital.
  • By offering and selling equity in their company through the Internet, companies gain a wider and more efficient distribution of the offering to a larger audience when compared to traditional sources.
  • Using the Internet to offer and sell securities should decrease the cost of capital
  • Non-accredited individual investors, previously excluded from equity crowdfunding investments, are now invited to become investors with certain limitations.
  • Investors have a level of protection since companies raising capital through crowdfunding will be required to utilize funding portals or registered broker dealers and will have certain disclosure requirements to investors. Additionally, funding portals that wish to participate in the crowdfunding process as an intermediary will be required to register with the SEC and become a member of FINRA.

Launching Your Crowdfunding Campaign

Even if you are a tremendously successful owner or executive, a successful crowdfunding effort will require expert marketing surrounding your efforts to raise funds. You and the members of your management team will assume the responsibility of formulating a marketing campaign to create interest in your offering. You’ll need a good story to tell investors complete with business plans, financial statements and projections.

In the crowd, you’ll be competing for investment dollars with other companies so you need to engage in strategies to elevate your offering over all others. Earning the trust and confidence of investors can lead to a successful offering. Consider activities that could strengthen your relationships with clients, customers, and even vendors. These relationships may help to support a successful crowdfunding campaign and could represent your future investors.

To launch your crowdfunding campaign, you’ll be using the services of an SEC registered broker/dealer or SEC registered crowdfunding platform or funding portal. Each will probably offer different services and fee structures. Once your customers, clients, and vendors have invested in your business, you may want to reach out to a broader base of potential investors. Getting your offer in front of the right investors will be critical to achieving your capital raising goals.

As a private company, you may not be accustomed to sharing operational and financial information publically. A successful crowdfunding campaign may require additional transparency if you are to build trust and confidence in prospective investors. If you are not comfortable sharing company information with the world, you may want to explore a more proprietary method of raising capital.

Once you have executed a successful crowdfunding campaign, you will need to have a plan on how you will continue to communicate to your new investors. How much information are you willing to share? Which rights to information will investors have? Consider creating an investor-only section on your company’s website where you can post periodic information about your company’s progress, financial results, etc. Transparency is the key if you want to keep your investors informed and hungry to make additional investment in the future.

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3 Reasons Why M&A Will Continue to Thrive in 2015

February 17th, 2015 | Posted by Sarah Jones in Guest Blogs | Member Blog Posts - (Comments Off)

This week on NVTC’s blog, guest blogger Gretchen Guandolo of member company Clearsight Advisors discusses the success of M&A in 2014 with the return of gargantuan deals, largely seller-friendly transaction structures and premium valuations, and offers three reasons why 2015 will be just as successful.


dollar-exchange-rate-544949_1280In what was widely considered a banner year for M&A, 2014 was the return of gargantuan deals, largely seller-friendly transaction structures and premium valuations. In spite of the turbulent equity markets being driven by fluctuating oil prices, a gathering storm in Europe, and uncertainty around rising interest rates, we at Clearsight are already seeing the makings of a very big M&A year. Globally, investment banks are seeing increased deal flow and expanding pipelines. Our team is already out to market with several deals that are garnering high demand and premium valuations from a number of unique buyer groups. We expect the rising M&A tide to continue through 2015, as we believe demand for niche leadership positioning, strong growth trajectories, and seasoned management teams is unlikely to dissipate. First, a few fun facts from 2014 that will continue the momentum through 2015:

  • In 2014 there was $3.5 trillion worth of global M&A activity, which is up 47 percent from the year before
  • Global private equity investments totaled at $561.9 billion. That’s the highest figure since 2007, and a 43 percent bump over 2013 – with 60 percent of 2014 buyout activity focused on add-on investments
  • Venture capitalists disbursed a massive $87.8 billion (compared to $50.3 billion for 2013) via 7,731 deals
  • Companies raised around $249 billion in global IPOs in 2014, which was the busiest year for new listings since 2010

So what do we expect for this year?

  • There is likely to be a frenzy of activity in certain verticals, including: healthcare, energy and technology. Technology continues apace with no sign of slowdown and while the energy sector is harder to predict, one thing is clear – disruption in a regulated industry makes for a great M&A environment
  • Investor interest in certain technologies is likely to grow. Some of our favorites include: customer experience, big data, and human capital management. Technologies that enable us to get into the minds of customers and lead them on a journey to experience and buy a product has become the goal of retailers, financial services companies and even government! We see the market of big data continue to evolve and mature. This year will be a great growth year for data analytics consulting businesses who leverage Hadoop and other open source technologies to deliver predictive behavior, lower costs and drive increased revenue. Human capital technologies will continue to surge as employers seek out the best talent and retain and train individuals in a hyper competitive market.
  • As seen in 2014, both private equity and strategic acquirers will drive robust market competition. Nearly all of our processes include both strategic and financial buyers and as private equity grows increasingly aggressive in pricing in an effort to put money to work, we see strategic buyers dominating 2015.

Growth will continue to be the main driver of valuations throughout 2015. Premium multiples go to the companies with a demonstrated high growth track record and robust pipeline for future growth. Growth eclipses profitability through 2015.

 

 

 

 

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How to Use Equity to Incentivize Employees

July 31st, 2014 | Posted by Sarah Jones in Guest Blogs - (Comments Off)

NVTC is inviting members and industry leaders to serve as guest bloggers, sharing insights and information on trends or business issues relevant to other members. In his latest post on the NVTC blog, Matt Rajput of CohnReznick shares his insights how to attract and retain employees through equity compensation.


Technology company executives are continually challenged with how to attract, retain, and motivate key employees. Technology start-ups, in an effort to conserve cash, are known for streamlining operations and offering employees thin compensation and benefits packages until they land on more stable financial ground.

One idea for attracting and retaining employees is to include an equity component as part of the complete compensation package.  This can be in the form of common stock, stock options, profits interests, phantom stock, and other forms of equity.

Issuing equity to employees is a great opportunity to give employees a stake in the future of the company because the value of their stock, stock options, or other equity instrument is tied to the performance and growth of the company. This concept of ownership also creates inherent advantages as employees who become owners themselves (or have the option to become owners) will work harder to improve the business, because it will drive more value to their options.

Equity compensation promotes employee retention as vesting terms or restrictions typically require employees to remain with the company for a certain period before they are fully vested in the equity. For example, an employee can be given 100 stock options, in lieu of or in addition to an annual bonus, but the options have a four year vesting term requiring the employee to vest in 25 options each year. In this circumstance, the employee would have to remain with the company for four years to fully recognize the entire value of the 100 stock options. If the employee were to leave after two years, they would only be vested in 50 stock options leaving 50 options on the table.

Equity is also a very important carrot that can be used to attract talent.  In a competitive market, the ability to offer a prospective employee a stake in the upside of the company’s growth could be a differentiator in closing the deal.  Even if the company has the ability to pay market salaries, many astute tech executives continue to look for an equity stake.

Another attractive element of this type of compensation is that it is a cost-effective way to offer employees additional compensation that may be worth a great deal of money in the future as the value of the company improves over time.

However, implementing an equity compensation plan does not come without challenges. Some employees may not want to wait a few years for a liquidity event to receive the compensation for the work that they are currently performing. Long vesting periods, tax consequences, and high exercise prices are all characteristics that make equity issuances less satisfying to employees than cash compensation. Additionally, non-public companies may have a hard time getting employees to realize the value in an equity instrument that cannot be easily turned into cash.

Despite these pitfalls, many companies, both public and private, continue to utilize various forms of equity compensation to keep their employees motivated, well-compensated, and engaged.


Matt Rajput, CPA, is an Audit Senior Manager with CohnReznick LLP and a member of the firm’s Technology Industry Practice. Working from the firm’s Tysons Corner office, Matt has eight+ years of experience servicing publicly-traded and closely-held companies in the technology sector and he routinely provides services to private equity and venture capital backed companies. Contact Matt at matt.rajput@cohnreznick.com. Follow CohnReznick’s Technology Practice on Twitter @CR_TechInd.

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