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The offering

Much of the advice in this section applies to all SMEs seeking investment capital. It is included because of the importance of preparing a good investment 'offering'.

The offering is the final piece that the SME puts in front of investors. Many entrepreneurs fail to appreciate the complexity of even a basic offering. A well thought-out and structured offering reassures potential lenders and investors that the SME knows what it is doing and understands the interests of capital markets.

By far the largest proportion of SME offerings are private placements. In this field, investment bankers, small fund managers, venture capitalists, socially responsible investors and wealthy individuals ('angels') are the most important.

There are several key elements in any investment offering. Firstly, it must be consistent with the SME's business planning, notably its financial projections (including cash flow and return). The business plan is the foundation on which the investment offering is built. Some companies choose to include it in their offerings.

The investment offering should be structured in such a way as to allow participation by a wide range of investors and lenders. While casting the net wide, entrepreneurs should at the same time go fishing in specific ponds.

Investment offerings are often written principally for investors, but they should address both lending and investment sources. Covering both debt and equity sources builds an ideal financial base. The offering should involve various instruments, including senior debt, subordinated debentures, preferred stock and common stock. (Refer to a business finance text or other resource book for information about these instruments.) Each has different properties, making it necessary to select carefully to ensure that the instrument matches the financial and operating requirements of the enterprise. The offering should also be flexible, and the entrepreneur should be prepared to negotiate with potential lenders and investors.

The offering should be strong on fundamental economic issues by offering a reasonable rate of return, tax considerations, liquidity or exit provisions, controlling company interests, and risk minimization.

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