Risk Management

The act of raising debt or equity is typically accompanied by much anticipation about the potential future return on those funds. However, that is only half the story. The risks inherent in any new venture or investment need to be considered just as carefully.

Debt capital requires a business to make periodic payments to a lender. If a company is unable to make these payments, it risks losing assets pledged as collateral and might be forced into bankruptcy. Too much debt might restrict the ability to raise additional capital and might limit the business’ ability to operate and grow.

As for equity capital, if a business raises too much, it risks losing control, as equity investors are usually entitled to vote on company matters. There is the risk too of missing growth opportunities as the ability to reinvest funds may be constrained by the demand from equity investors for substantial dividends.

In any fund raising exercise, we take a long, hard look at both the future returns and inherent risks in a business. We assess market conditions, competition, business model logic, management and control of the business and consider how these factors feed into future cashflows and risk assessments. We then advise on the optimum capital structure (in terms of debt and equity) and the prospects for successful fundraising before using the information to seek out suitable investors.