KENNETH H. MARKS is the founder and Managing Partner of High Rock Partners, Inc. He has been involved as a manager, advisor, and board member with over two dozen emerging growth and middle-market companies. Marks was a member of the Young Presidents' Organization (YPO) while growing his first company. He teaches in executive programs at Loyola University Chicago and North Carolina State University.

LARRY E. ROBBINS is a founding partner of Wyrick Robbins Yates & Ponton LLP, a premier law firm located in North Carolina. He is a leading attorney in North Carolina middle-market financing and M&A transactions. Robbins received his BA, MBA, and JD from the University of North Carolina at Chapel Hill.

GONZALO FERNÁNDEZ is a partner with High Rock Partners, Inc. and a retired vice president and controller of ITT's telecom business in Raleigh, North Carolina. He received a BA in accounting from Havana University, Cuba, and wrote the book, Estados Financieros (Financial Statements, Third Edition).

JOHN P. FUNKHOUSER has been a partner with two venture capital funds and operated as chief executive officer of four companies in a variety of industries. He worked in commercial banking with Chemical Bank of New York, in investment banking with Wheat First Securities, Inc., and in venture capital with Hillcrest Group.

D.L. WILLIAMS is a managing partner of High Rock Partners, Inc. As a CEO for over twenty-five years, he led three global manufacturing/technology companies through major transitions?two of which he led the buyout of, working with private equity firms. As an advisor, he has worked with companies in numerous industries on growth, operational, and turnaround strategies to create value and implement change. Williams obtained his MBA from the Kenan-Flagler Business School at the University of North Carolina in Chapel Hill.

Preface xv

Acknowledgments xxi

About the Authors xxiii

PART I The Financing Process 1

CHAPTER 1 Introduction 3

CHAPTER 2 Planning and Alignment (Begin with the End in Mind) 7

An Overview of the Planning Process 8

Strategic Planning 10

Updated Forecast 27

Business Valuation 27

CHAPTER 3 Acquisitions, Recapitalizations, and Exits 37

Acquisitions 37

Selling the Company, Creating Shareholder Liquidity 41

CHAPTER 4 Capital Structure and Financing Strategy 45

Assimilating the Drivers 49

Developing Liability Limits 63

CHAPTER 5 Sources of Capital and What to Expect 69

Bootstrapping Sources and Techniques 72

Individual Investors (Private Placements Not from Angels or Institutions) 82

Angel Investors 83

Commercial Banks 95

Asset-Based Lenders 100

Commercial Finance Companies 115

Leasing Companies 116

Private Equity 119

Venture Capital Funds 122

Mezzanine Funds 152

Buyout Funds 157

Hedge Funds 164

Strategic or Industry Investors-Corporate Venture Capital 166

Merchant Banks 168

Community Development Initiatives and Government Agencies 169

Micro-cap Public Entities 193

Royalty Financing 196

CHAPTER 6 Equity and Debt Financings: Documentation and Regulatory Sources of Capital and What to Expect 203

Basic Definition of Debt and Equity 203

Debt Instruments 206

Loan Documentation 212

Equity Instruments 260

Equity Investment Documentation 264

Compliance with Securities Laws 292

CHAPTER 7 Expert Support-The Players and Their Roles 301

Counsel 301

Board of Directors 303

Investment Bankers 306

Accountants 312

Consultants/Advisers 315

Summary 317

CHAPTER 8 Closing the Deal 319

Process Check-In 319

Final Perspective 326

PART TWO Case Studies 329

CASE STUDY 1 Asset-Based Lender, Receivables Financing 332

CASE STUDY 2 Asset-Based Lender, High-Risk Loan 336

CASE STUDY 3 Asset-Based Lender, Assignment for Benefit of Creditors 339

CASE STUDY 4 Asset-Based Lender, Acquisition 344

CASE STUDY 5 Asset-Based Lender, Turnaround Funding 348

CASE STUDY 6 Asset-Based Lender, Growth Financing 352

CASE STUDY 7 Commercial Finance, Trade Financing 356

CASE STUDY 8 Angel Investor, Initial Funding and Sale of Company 359

CASE STUDY 9 Venture Capital, Early Stage Growth Equity 362

CASE STUDY 10 Royalty Financing 365

CASE STUDY 11 Venture Capital, Growth Equity 367

CASE STUDY 12 Community Development Finance, Growth Funding 370

CASE STUDY 13 Debt with Revenue Sharing 375

CASE STUDY 14 Mezzanine Investment 377

CASE STUDY 15 Private Equity, Acquisition through Exit 378

CASE STUDY 16 Private Equity, Management Buyout/Partner Exit 380

CASE STUDY 17 Private Equity, Restructuring 382

CASE STUDY 18 Private Equity, Acquisition with Management Participation 385

CASE STUDY 19 Private Equity, Public to Private Transaction 388

CASE STUDY 20 Private Equity, Buy-and-Build Strategy 393

PART THREE Financing Source Directory 397

Suggested Use of the Directory Section 399

APPENDIX A Corporate Finance Primer 523

APPENDIX B Financial Statements 551

APPENDIX C Discount Rates 563

APPENDIX D How Fast Can Your Company Afford to Grow? 567

APPENDIX E Notes about Start-Ups 583

APPENDIX F Accounting Principles-GAAP and IFRS 587

Glossary 591

Notes 623

Index 633