Raising capital is one of the few decisions a company makes that is hard to undo. The investors who come in, the terms they accept and the story told to them will shape the business for years. Yet issuers often choose the bankers and placement agents who will guide that process quickly, on the strength of a pitch book and a few meetings.
This note is written for issuers: founders, management teams, boards and sponsors considering a private placement, a debt or equity financing, or a strategic transaction. It is general information, not advice about any particular transaction. Its purpose is to suggest the questions worth asking before an engagement letter is signed.
Who will actually do the work?
Ask to meet the people who will run the process day to day, not only the senior bankers in the first meeting. Ask how many other mandates they are carrying and how they will prioritize yours. A capital raise rewards sustained attention, and the quality of that attention often depends on staffing decisions made after the pitch.
How will conflicts be handled?
Every advisor has relationships: with investors, with other issuers, sometimes with affiliates that invest or lend. None of that is disqualifying, but all of it should be disclosed. Ask whether the firm or its affiliates might invest in, lend to or compete with your company, and how the firm decides which transactions it will and will not take on. At Slate Blue Summit, new engagements pass through a New Business Committee and a conflicts clearance process before any work begins, and fairness opinions are governed by a dedicated committee under FINRA Rule 5150.
“A good advisor will tell you about its conflicts before you ask. A better one will show you the written process for handling them.”
Who are the investors, and how will they be reached?
Ask which investors the firm expects to approach, why they fit your business, and how they will be contacted. Ask how the firm verifies that investors are eligible for a private offering and how it documents that work. The answers say a great deal about whether a process will be targeted and orderly or broad and noisy.
What are the terms of the engagement?
Fees, expenses, exclusivity, tail provisions and termination rights all deserve careful reading. So does the allocation process: how decisions will be made about which investors receive what portion of an offering, and who makes them. Ask to see how pricing and allocation decisions are documented. Clear terms at the start prevent disputes at the end.
- Who will staff the transaction, and how much time will they have?
- What conflicts exist, and how are they cleared and disclosed?
- Which investors will be approached, and how is eligibility verified?
- How are pricing and allocation decided and documented?
- What are the fees, expenses, exclusivity and termination terms?
The right answer is often a written one
The most reassuring answer to any of these questions is a document: a policy, a procedure, a committee charter. Capital markets work is regulated for good reason, and firms that take that seriously tend to have written down how they work. Slate Blue Summit conducts its securities activities through Slate Blue Capital Securities LLC, and issuers are welcome to ask us any of the questions above. We would ask the same of anyone advising on our own capital.
Perspectives are general information and reflect the views of Slate Blue Capital at the time of writing, which may change without notice. They are not investment, legal or tax advice, do not describe or offer any security, fund or service, and should not be relied on in making an investment decision. See Important information.