At this point, your Company’s capital markets structure will be built on top of previous iterations, therefore it will most likely be complex and tailored specifically to the Company’s business model. As a more mature Company, lenders should see lower risks and thus the number of potential viable lenders will increase. As supply of lenders increases, more attractive cost of capital from large, traditional financing providers (banks, insurance balance sheets, strategics, sovereigns, public markets, etc.) will become available.
What Matters?
Cost of Capital / Leverage Metrics: a common goal of a Company at this stage is planning for a public market exit or acquisition by a strategic. If so, securing low cost financing partners will make the Company an even more attractive target. Increasing the LTV your company is borrowing at (within reason) will also increase margins and generally increase your Company’s attractiveness.
Diversification of Funding Sources: having multiple options for financing allows for the optimization of cost of capital, seasonality effects or any other unique business characteristic. Diversification will also ensure a Company is durable and can last through inevitable business cycles.
What to Avoid
Concentration of Funding Sources (while repetitive this point is worth reiterating): do not rely on a single large funding source. Diversify to ensure that no single lender can bring your credit capital strategy down. Many companies have been brought down because they’re overexposed to a single funding source which experiences problems.
Lenders with Ulterior Motives: if a lender is lending only to try and secure ancillary services (such as IPO fees or cross-selling banking products) be wary of exploding timelines or restrictions that may exist.
