What to do when your company is public and you require additional equity but your company’s share price is too low for your liking?
Here are three clever alternatives:
1. Convertible Debenture. A convertible debenture is a bond that the holder can convert into a specified number of common or preferred shares in the issuing company at a predetermined event or date. It is a security with debt- and equity-like characteristics. Choosing to raise money via a convertible debenture, the company could structure it so that its conversion price is above the current stock price, possibly increasing every year.
2. Non-Dilutive, Revenue-Based Royalties. The company could sell royalties on its revenues (of less than 5%), with the benefit that it does not have to give up any ownership or concede board seats. Definitive agreements are simple and free of onerous covenants.
3. Joint Venture. The company could create an undertaking legally separate from its business and finance it by inviting certain financiers to join it. Such financiers could be strategic investors, financial investors or high net-worth individuals.
For more detailed information about being public and equity financing in general, see The Decision-Maker’s Guide to Long-Term Financing – available at www.guidetolongtermfinancing.com.
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