Questions founders ask

These are the questions founders, owners and finance directors bring to us most often, in roughly the order they ask them. Each is answered from the public record, with the pieces that answer it best.

Should I raise debt, equity or a mix of the two?

Debt is cheaper than equity when the business can carry it, and it costs nothing in ownership. It costs cash every quarter instead, and it comes with covenants. The answer depends on whether the business has the earnings, the assets or the contracts that a lender can lend against.

• How Skylight funded growth with debt instead of selling equity, a founder-owned company that borrowed $75m rather than sell a share.
• The capital stack, from the founder's side: what each layer costs and who is repaid first.
• How private credit prices a loan: spreads, fees, floors and covenants, with real numbers.
• The price of money: what private debt and equity cost now.
• A UK small business pays 280 basis points over Bank Rate, and the Ledger's rates tables.

How much of my company will I give away?

Dilution is set by three numbers: how much is raised, at what valuation, and what the investors' shares carry with them. Loan notes, preferences and option pools change the answer more than founders expect.

• BK Plus: how an accountancy roll-up split its ownership, where most of the investor's money went in as loan notes.
• Space Forge's Series A, and how a bridge converted at a discount.
• The capital stack, from the founder's side.

What valuation can I defend?

A valuation is defended by comparable deals, by the company's own numbers, and by the investor's need to make a return. In a market without public prices, the comparables are mostly private, which is why the filings matter.

• Freetrade: a 72% cut in price, and the share classes that got their money back, on bridges, down rounds and preferences.
• The price of money.
• Dexory's Series B, a round priced against growth.
• Reading in the dark, on why private capital is raised by argument.

Who is the right investor for us?

The right investor is one who can write the cheque, wants this kind of asset, and has the patience its plan needs. Each raise draws on a different group, and a company's investors change from one raise to the next.

• The second raise is written by fewer, larger cheques.
• Fewer investors, larger cheques.
• A Nairobi hotel's development finance: where IFC, Proparco and MIGA fit.
• Space Forge's Series A: who will invest in defence and dual-use technology.

How do I avoid months of meetings with investors who cannot invest?

Most wasted meetings are with investors whose mandate rules the company out before the meeting starts: wrong size, wrong stage, wrong sector, wrong country, or a fund that cannot hold the asset at all. They can be screened out before the first email.

• Space Forge's Series A, on mandate screening in a category many funds exclude.
• The advertised raise fills a third as often: reaching more investors is not the same as reaching the right ones.
• What investors check before they wire.

How much should I raise, and when?

Raise what the plan needs to reach a point an investor can check, and start sooner than seems necessary. Raises that sell less than half their target usually ran out of time, not interest.

• Two in five private raises now sell less than half.
• The half-sold raise, the full report.
• Above $100m, half of private raises sell less than half.
• Pre-revenue raises sell in full one time in five.
• Fifteen months between raises.
• Equity crowdfunding raises a median $122,000, and Regulation A companies sell a median 11% of what they register.

Can the business carry debt, and on what terms?

A lender asks whether the cash flow covers the interest with room to spare, what happens if it does not, and what it can take if it must. The terms follow from the answers: margin, maturity, covenants, security and how much interest can be paid in kind.

• How private credit prices a loan.
• A tenth of private credit pays in kind.
• Alpine Fire's refinancing, a family business moving from a bank to a debt fund.
• The Westshore Grand: how a hotel's capital stack was built, senior debt with mezzanine above it.
• Ocker Hill: how a ten-year toll turned a battery into bank debt.
• The Ledger's private credit tables: spreads by lien, industry, size and lender.

What does the process look like, and how long will it take?

A private raise takes months, not weeks: preparation, the first meetings, diligence, terms and legal work. The record shows how long raises take to fill and what investors check before they commit.

• What investors check before they wire.
• How to read a Form D.
• The half-sold raise, on time to fill.
• Reading in the dark.

What will advisers and agents cost, and are they worth it?

Placement agents and advisers are paid a retainer, a success fee or both. The filings show how often they are used and whether raises that pay one fill more often.

• The placement agent premium is zero.
• Above $100m, half of private raises sell less than half, on agents by size.
• The Ledger's equity tables: agent use by industry and size.

Where is capital going, and who is about to raise?

• The map of American private capital: every state, mapped.
• Texas raises fill less often than California's, even in technology.
• Oil and gas raises are the hardest private raises to fill, and every other industry beside it.
• Texas advertises its private raises. California fills them.
• California's share of private raises has fallen by a third.
• 140 gigawatts waiting for money.
• The visible book, on what the lenders' published loan books show.
• The Ledger, every table.