In the world of project funding there are many ways in which capital can be raised. We have outlined below large project financing options offered in the finance market, as well as what funders expect in return for investing their capital into projects.
Large Project Financing Options
Prestige Capital Partners source financial products and services to initiate project funding. Below are different types of funding available in the market which we can utilize but not limited to.
Traditional corporate and project financing transactions would normally require the client to have at least 30% liquid collateral invested before any traditional lender would even consider participation. As well, the lender would look for assets which are ‘bankable’ when considering the project’s needs. Another words, they will look at ‘on balance sheet’ lending. In projects just starting this can often be very difficult to achieve as they will have very little if any assets to demonstrate.
The primary goal of project financing is to figure out how to maximize the value of a business by making good decisions about investment, financing and dividends. In other words, a business should consider how and where to allocate it’s resources in order to minimize expenses and maximize revenues. How should companies acquire these resources (through stock or bonds, owner capital or bank loans?) Business owners and directors focus their decisions to maximizing shareholder investments by devising and implementing a long-term and short-term financial plan. Everything from capital investment decisions to investment banking falls under the domain of corporate finance.
Venture Capital Funding
Venture capital funding is money provided to seed early stage, emerging and emerging growth companies. In exchange for funding at such early stage and what could be perceived as risk, the venture capital firm would normally ask for an equity stake in the company which they invest in. Typically the equity stake would be anything from 50 – 75% of the company. Venture capital is a type of private equity. This type of funding is attractive to companies which are:
- Have limited operating history
- Are too small to raise capital in the public market arena
- May not wish to raise money through a traditional bank loan due to lack of assets on the books.
In exchange, the venture capitalists will hedge against this type of high risk investing by taking a significant share in company ownership, thereby taking significant control over company decisions. Companies looking to raise funding have to weigh up the pros and cons. The biggest decision is by agreeing on how much company ownership they are willing to give away.
Private Equity Funding
Private equity is equity which is not quoted on the exchange, instead it is made up of a group of investors and/or funds which is then invested directly into private companies. As well, PE firms will perform buyouts of public companies. The majority of private equity companies consists of institutional and accredited investors who can invest a portion of money for long periods of time. Because the money is ‘pooled’ as an investment fund, they will charge both a performance fee and an annual management fee (typically 2% per year). The performance fee can be typically 20% of gross profit upon sale of company.
Private equity finance normally takes place in the latter stages of project finance. In other words, they generally do not consider start ups or companies looking for seed capital. As a result, companies would need some kind of performance history and an important metric for PE firms when assessing whether or not to invest in a company would be EBITDA (earnings before interest, taxes, depreciation and amortization). Typically, PE firms would invest in a company in the view of improving the company to sell it onto a larger corporation for a large profit.
Trying to convince a hedge fund to invest in a project can be extremely challenging. Whilst these funds can be worth a substantial amount of money, getting them to invest in your project can be a very difficult process. Hedge funds are like mutual funds in so much that they are pooled investment vehicles (i.e. several investors entrust their money to a manager) and they invest in publicly traded securities. There are some differences between a hedge fund and a mutual fund. One being that investors give hedge funds the go ahead to pursue absolute return strategies by short selling.
Whilst hedge funds actively seek absolute returns and do so by trading in instruments such as derivatives or may ‘short sell’ and participate in options trading. There are some funds which may look at hard assets such as REITS (real estate investments trusts) which invest in as you have guessed, real estate. This could also involve select development projects. Sifting through the countless hedge funds who may invest in developments can be in itself a challenge. Whilst there are many more ways of getting funded which has not been outlined, above are just some of the main methods of raising capital and is for guideline purposes only.
Other Large Project Financing Options
This is just a quick reference guide to business terms that are used to reference financial terms. We can help raise capital you need by using some of these services:
Private investor is just another way of referring to an individual that takes their own money and uses it to help fund another business. Large scale projects that these investors receive and accept means that most lending cannot be undertaken by a single lender. Instead, a syndicate of lenders will be formed. In a typical syndication, a number of lenders will be parties to the structured loan agreement.
Large project funding from private investors usually involves having to accept their terms and conditions which they might be entitled to a large proportion of profits and sitting on the board and could risk exposure that are the entrepreneur feels uncomfortable with.
- Insight in business startups
- Advisory services
- Look for high returns
- Want control over the business
Boutique Investment Bank
Boutique Investment Bank pros and cons:
- They structure bespoke solutions to match your funding needs
- They do not hold funds on deposit so will not be as affected with liquidity issues
- Due diligence process may not be as laborious as conventional retail banks
- Because they structure products drawing down from capital markets, there may be associated costs involved
- They do not offer deposit accounts
- May want an equity share in your project
Investment Boutique Banks
A small financial firm that provides specialized services for a particular segment of the market. Investment boutique firms are most common in the investment management or investment banking industries. – Wikipedia
Corporate Backers are businesses who support, sponsor or back another organization. An example of this is football team sponsorship.
Arranging Large Project Finance
Prestige Capital Partners is a large project financing company that will guide you through the funding process making it as seamless as possible. Prestige Capital Partners offer a straightforward process for large project financing and present you with the best options available. However, all the options above can be a fairly slow process so many of our enqiriers tend to ask us for help to fund projects using bank instruments instead.