Subscribe to this page
EquityFC Blog
The equity gap: don't call it a comeback | 21 July 2010
Remember the equity gap? In more buoyant times, it was the chief malaise for companies seeking PE backing. Too small to get a nice big slug of debt and equity from the serious PE players, too big to be viable on the backing of early-stage funders and angels. What to do?
Well, it's back. I was chatting to a lawyer specialising in VC deals this week, and he says it's worse than ever. The problem is that less debt is ratcheting up the risk for equity providers - and a sluggish economy means that they know they need a watertight business case if they're to get the confidence they need to take the plunge and buy a company still in development. It's a contributory factor to the Dearth of Deals™ - and to the slow recovery.
One way to address the central problem - perceived risk for equity providers - is to show the business is clearly out of start-up phase and has the chops to move forward decisively. And that means hiring a decent finance exec.
For many business suffering from the equity gap, that might not be a fully-fledged, six-figure FD. But at the least, they need a decent controller to nail the cash-flow and related processes and put in place working budgeting and forecasting systems. And they need FD-like advice - from a part-time or interim FD, or perhaps a finance-minded non-exec.
Claiming you can't afford "back office" talent in a growth phase is false economy - and that applies whether you're an entrepreneur or an early-stage investor wondering whether you'll ever exit...