Why and when to look for investors or shareholders?

There may be various situations within a company that bring to the table the potential search for financial investors or strategic partners through capital increases or other means. One such situation is when the company is entering a growth phase that requires investment beyond its own capabilities. For instance, to continue growing, the company might consider an internationalisation strategy or investment in the development of new technology that requires significant R&D work.

Instead of creating or increasing liabilities with long-term debt, external investors can be sought to undertake these investment projects. To start looking for investors, it is important to have a defined strategic plan for the project to be funded. The expected value of the project should be greater than the amount of the capital increase received.

Capital Increase

What is it and how does it work?

A capital increase is a financial operation that boosts the company's own resources by issuing new shares or stakes and the entry of external investors into the capital.

The new capital does not represent a debt for the company, and the risk assumed by the new shareholders is the same as that of the current ones. The situation in the face of potential creditors improves due to the increase in own resources.

Unlike a bank loan or other financings, a capital increase does not set repayment terms. On the other hand, its cost will always be higher than debt, because the assumed risk is greater than that which a bank would undertake.

How does a capital increase affect old shareholders?

In a capital increase with new shareholders, new shares are issued, which results in a dilution of the old shareholder's stake. This means their control over the company decreases. On the other hand, the value of the company in a capital increase is enhanced. This increase in value is equal to the amount of capital injected by the new shareholders. Therefore, the value of their investment is not affected at the time of the increase.

What types of partners or investors can inject capital into a company?

When considering the search for an investor or strategic partner, there are different types of investors or partners who can inject capital to carry out the growth project being considered. Depending on the type of project, a certain type of investor may be more favourable than another:

Financial Investors

Private Equity or Venture Capital: This is an investor who usually has expertise in the sector or even has a 100% focus on a specific sector. They aim to grow the company through a temporary investment based on a growth plan that requires capital to carry out said plan.
Investors who base their growth on acquiring other companies: These are companies that grow by "grouping" other companies with proprietary solutions and operating in specific verticals. They undertake long-term and continuous investments.
Search Funds: These are funds that seek to have a single company to invest in and manage it. Transactions are carried out through majority buy-out operations. They solve the problem of lack of succession in many companies.
Family Offices: This is an investor group that manages the wealth of a family. Their investment focus is very diverse and they often have the flexibility to approach investments.

Strategic or Industrial Partners

Technological strategic investor: This is an investor who operates in the sector and knows it. In general, they are interested in a long-term investment with the goal of keeping the company within the group. The key factor deciding the investment is the synergies that can be created between the two companies.
Non-technological companies: These are companies from other sectors that invest in a company to grow their own business. Often, the acquired company has some type of technology or knowledge that is of special interest to the investing company.

Searching for Financial Investors

How to look for new financial investors?

Searching for a financial investor for capital increase is a process that can be long and requires a lot of dedication. It's necessary to find the investor who best fits the business idea and strategic plan. It is advisable to have someone experienced in this type of process and prepare the best possible investor search strategy.

As a preliminary step to defining this investor search strategy, it is important to have a very well-defined growth strategy plan. All aspects such as objectives, investment cost, investment time and recovery, expected profitability, human capital involved, etc. The investor will review all the details of the business or growth plan to be achieved and, therefore, convincing with a good strategy is essential.

It must be considered that an investor seeks to achieve their own objectives in exchange for making their capital available. These objectives are not always limited to achieving a certain return on the investment made and are specified during the process of conversations with the investor.

Before starting the search, it's necessary to determine which type of investor is most suitable for the objectives outlined in the strategy. For example, in the case of a strategy to enter a foreign market, it may be advisable to look for an investor or strategic partner who has knowledge of the market or can even support operationally in the landing.

Searching for Strategic Partners

What is a strategic partner?

Unlike a financial investor, the strategic partner has a more long-term investment vision and always seeks objectives beyond return on investment. Their contributions are not limited to injecting capital but also include know-how, technology, patents, commercial network, infrastructure, etc., that helps the company they invest in to achieve its growth objectives.

The strategic partner shares resources, competences, risks, and long-term benefits, and therefore, has a long-term commitment to achieving specific objectives.

Resolving your doubts as corporate finance experts

Many entrepreneurs and executives have questions when it comes to obtaining funds in line with the defined strategy and implementing capital structuring objectives:

Financing strategy: How do I maximise value for the shareholder and all stakeholders? What is the optimum point of profitability and risk?
Identification and evaluation of options: What financing sources (debt or equity) are available? Which is most suitable for me considering my company's growth expectations?
Operation execution: How do I achieve the best conditions? How do I make my investment proposal more attractive to attract the best capital? .
Closure: How do I manage communications with the operation's stakeholders?
Constant communication with management and stakeholders: How do I manage communications with stakeholders to maintain the support of financiers and shareholders?

Search for financial investors or strategic partners