How to fund that next round of expansion is an almost inevitable challenge faced by the vast majority of growth companies. The support of ‘friends and family’ has likely been exhausted even if borrowings have been repaid and regardless of the health of the cash flow, once it comes to finding that critical seven or eight-figure sum, difficult choices have to be made.
Handing over a large slab of hard-earned equity to an investor, who is in turn likely to take an ‘active interest in your business and management style has the potential to be a hugely fruitful collaboration – although for many entrepreneurial founders, this could prove to be a significant constraint on their own ambition.
Another option on the agenda is debt and although benchmark interest rates still sit at historical lows, bank risk managers are unlikely to look terribly sympathetically at this sort of proposition. That means either opting to post significant collateral to underwrite a loan, being saddled with a high-interest rate and a series of punitive covenants to match, or even looking at the complex task of issuing bonds. Many businesses have had to make these tough calls and although some have succeeded, questions have to be asked as to at what price – and how many have been suffocated by these constraints?
There is however a third option on offer to growth companies, allowing them to tap into the potential of institutional, sophisticated, and managed capital, not only to raise funds but also to see a secondary market exist in their securities, be they debt or equity. This isn’t a wholly new construct, but by tapping into the latest technology, processes, and regulations, CrowdX has developed a formula that offers companies the ability to grow or reorganise their cap table, whilst being accessible to all.
To that extent, we’ve built a structure that replicates what any listed company enjoys – albeit without many of the more arduous and expensive elements. Automated valuation tools and integration with the latest accounting software then supports the credibility of the offering alongside an ESG rating and carbon reporting metrics. All issuers are still subject to listing requirements and public scrutiny of their performance, but can now raise equity without the risk of being beholden to a dominant shareholder.
Any raise can be tailored to individual issuer requirements and executed in the most appropriate format. Conversely, investors get the opportunity to support one or more businesses they truly believe in. What’s more, the presence of an active secondary market fuelled by multiple API connections for sources of liquidity means that we can provide a truly differentiated proposition here, something that is often demanded by those who invested at the outset and provides an added draw for including early-stage investments in a diversified portfolio.
Historically, founders have too often been caught between a rock and a hard place. Either they were obliged to hand over control of much of their business to third parties in an equity sale, or left hamstrung by expensive borrowing and restrictive covenants. CrowdX wants to ensure growth companies of any size can tap into a vibrant market, providing benefits for issuers and investors alike, thus ensuring that the public market can always serve the public good.