Unlisted Companies Provide Pathway To Next Blue Chips

Imagine investing $25,000 in the then start-up Google in 1998 at four cents a share - that investment would today be worth around $160 million.

We’ve all heard stories about someone investing in the early stages of a company and their investment paying off in spades, but who are these companies and how do you find out about them before everybody else?

Dr Mark Rainbird, managing director of the corporate advisory, capital and business introduction firm Ramscove, says while the unlisted public company sector is important for the growth of various industry sectors, it can also provide early stage investors with potentially huge returns.

“An unlisted public company is generally a small company not suitable for listing on a stock exchange, has shareholders and can raise funds for any commercial venture, however it cannot generally advertise for investors,” Dr Rainbird says

“Because of the nature of the legal restrictions around promoting investment in this sector, most opportunities in unlisted companies are never offered beyond friends, family or those associated with the company, which means many new investors never become aware of them.

“However there are an increasing number of people who are actively looking at the unlisted companies sector as part of their portfolio to be able to get in at an early stage and reap the eventual rewards.”

Australia’s unlisted companies account for around 43 percent of Australia’s GDP, a substantial contributor to the economy in terms of both finance and employment, and while not for everyone, an understanding of the sector can give investors an insight to the companies that are likely to become future initial public offerings and potentially the next wave of blue chips.

A range of investment opportunities exist from as little as $25,000 in companies looking to raise capital via a small scale offering (up to $5 million in equity), excluded offers (usually for larger amounts to sophisticated investors), convertible notes or debt instruments.

So how do you find out about these opportunities?

Dr Rainbird says a number of business advisors specialise in this sector and can help investors navigate through the maze of opportunities as well as the potential risks.

“If you’re not sure how to access these opportunities there are platforms such as the Australian Small Scale Offerings Board which provides investors a transparent way to compare and review potential investments,” Dr Rainbird says.

“For the right opportunity the returns can be just as significant as a stock exchange listing. Returns can be realised at “exit” via a trade sale or initial public offering, where retail investors are just entering the investment, an early stage investor may choose to exit some or all of their holding.

“Risk, however, forms a large part of investing in unlisted public companies so due diligence and advice from a professional advisor is a must before taking the plunge.”

As the unlisted companies market is extremely diverse and made up of a range of industries from start-ups through to mature public unlisted companies looking for growth capital and sound exit strategies, there is plenty of opportunity for an investment that meets an individual’s specific criteria and profile, Dr Rainbird says.

“Investors in unlisted companies can choose whether to be passive or proactive including participation at the board level or at the executive operating level, and the ability to help shape the investor exit. Many early stage companies welcome this involvement from a cornerstone investor,” Dr Rainbird says.

“This expertise and bringing new business networks, products, and business acumen to the table can add tremendous value to a company and there is potential to oversee your investment rather than being a minority shareholder in a large company as you would investing through an exchange.

“Some investors enjoy this participation to help move the company forward and being able to contribute their knowledge and skills, as well as getting a financial return.”

Dr Rainbird says funds needed are generally small and are in the $1 million to $5 million range, enabling investors to make either smaller or significant contributions.

“The use of capital raised through investment is usually deployed quickly for maximum benefit of shareholders to drive growth through new sales channels, gaining market access from global expansion, finalising R&D projects, IP protection, working capital or the acquisition of other products or businesses,” Dr Rainbird says.

“Many companies in the unlisted market are fast growing and profitable. They are creating innovation in their particular niche, are nimble, and are not constrained by large company structures and in many cases have access to a global markets.

“As opposed to debt funding, leveraging equity is a low risk strategy for companies maximising growth opportunities, therefore minimising company and investor risks.

“Given the current financial climate, with cash and listed companies proving volatile, the unlisted sector is offering excellent opportunities over and above the traditional investment channels.”

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What factors are important in a successful capital raising?  While it is hard to be specific due to the fact that every capital raising "matter" is different.  We can however, engineer the factors that will make capital raising more likely to be successful.  These include:

• Structure of the business (private vs public unlisted vs public listed)
• The Board and Management team (who are investors placing their money with to protect it?)
• The capital or share structure of the offer
• The pricing of the offer (is it attractive to investors)
• The business proposition and leverage that the business has
• What is the exit for funders or investors - will they be stuck in funding a private company?
• The approach to investors

If your capital raising is not going as planned please contact us for a confidential discussion.

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Small Business Capital Funding - The need to plan.

We are still getting unindated by small to medium businesses that are looking for capital or finance to expand their businesses.  A number of businesses need working capital to meet demand.  Others have run out of founders funds and are looking for more equity.  A range of businesses are seeking help once they have got into quite a bit of trouble with creditors, the bank and other stakeholders.

We advise business to get help early from professional advisors.  When looking for funds (either debt or equity) it is important to have the right fundamentals - a good Board, a solid managment team and good handle on the buisiness and an exit strategy for the investor or funder.  Get advice early and communicate with your stakeholders around your requirements.

All too often we see folk getting help too late without a proper funding and capital raising strategy in place.  Often companies rely on only one course of action leading to dissapointment when things get delayed or don't go "to plan".

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