In the business world, we all have dreams. Like investing in state-of-the art equipment. Becoming a partner in a major development. Expanding our company internationally. Realizing your goal takes more than commitment and hard work. It takes a solid source of capital.
Ten years ago, finding that capital might have started with a visit to your bank. Today, you have a lot more options open to you - especially when it comes to private capital. Across North America and around the world, private capital has emerged as an attractive option for businesses of all sizes.
The growth in private capital reflects a number of trends, including a strong global economy, more people with the money to invest, and a greater willingness to look at investment opportunities beyond traditional stock markets.
According to Charles Addison, a vice president and director with MNP Corporate Finance in Vancouver, a key difference between public and private investors is that the latter are looking for longer-term investment opportunities.
"Private capital investors don't expect to see an immediate return, they're more interested in companies that will typically deliver in 5-7 years."
Charles adds that private capital appeals to both investors seeking new opportunities and companies needing fresh capital.
"Private capital can be an ideal solution for both public and private companies; they can use it to do everything from accelerate their growth to upgrade their equipment to expand their marketing efforts," says Charles.
Capitalizing on a winning hand
For Paragon Gaming, finding the right source of private capital was critical to its first major project in Western Canada: Developing a $182 million resort and casino west of Edmonton, Alberta. The project was a partnership between Paragon, a U.S.-based gaming developer and operator, and the Enoch Cree Nation.
"As an American company, we wanted a Canadian advisor that really knew the territory, the country, and the region where the development was taking place," says Justin Kolb, Paragon's chief financial advisor. Justin adds that MNP Corporate Finance offered the partnership all of that expertise and more.
One of MNP Corporate Finance's greatest assets was its flexibility in structuring the deal. Justin explains that the River Cree project was a complex one, requiring approvals from a wide range of parties: Paragon, the Enoch Cree, gaming authorities, and both municipal and provincial governments.
"MNP Corporate Finance understood right from the start that to meet everyone's needs – and ensure the success of the project – we had to be as flexible as possible."
MNP Corporate Finance also recognized Paragon's own expertise as a gaming operator. Justin says that unlike some corporate finance advisors, MNP Corporate Finance never wanted to take over as the operator; they focused only on being a partner from an investment standpoint, which was their area of expertise.
In total, the MNP Corporate Finance team raised $19 million in private capital for the development, which opened in October 2006.
"The casino and resort is doing incredibly well, and has been a great success in Edmonton," Justin enthuses.
Paragon has already partnered with MNP Corporate Finance on two additional casino projects in Western Canada. Recently, MNP Corporate Finance raised $6 million in private capital to assist Paragon in acquiring the Edgewater Casino in downtown Vancouver. MNP Corporate Finance has also raised $8 million for a new casino Paragon has planned in Whitecourt, Alberta.
Justin says he continues to be impressed by MNP Corporate Finance's expertise in helping his company find the capital they need.
"We really value our relationship with MNP Corporate Finance; they've provided us with not only capital, but have offered us connections to an outstanding network of contacts across Western Canada. It's been a fantastic partnership."
How to find the right private capital
Wondering where to start your search for private capital? Charles Addison, a vice president and director with MNP Corporate Finance, recommends taking these key steps:
Identify your needs
Decide how much capital you need and what you'll be using it for. Ensure you have a clear plan on where your capital will go before you seek financing.
Know what type of private capital you want
Private capital can be in the form of debt, equity, or a combination of the two. Knowing the level of involvement you want your investors to have will help you determine which structure is right for you. The most common types are:
Private debt capital.Private debt is similar to a loan, with fixed or floating interest rates. The repayment terms may vary, depending on your agreement. Private debt capital is commonly used to finance capital asset acquisition, especially for equipment with limited alternative use.
Private equity capital.Private equity capital requires you to sell shares of your company to your investors. This option can be especially attractive if you've leveraged your business too highly using debt. A key advantage of private equity capital is that it has fewer reporting requirements than public capital, while allowing for similar growth opportunities.
Hybrid capital.Hybrid capital combines characteristics of both equity and debt. A key advantage of it is that it's more flexible than ordinary capital, and enables companies greater access to fund harder-to-finance activities.
Choose the right advisor
Once you've considered what type of structure can best meet your needs, identify and talk with potential investors. A good place to start is by asking fellow board members and colleagues in your industry for suggestions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.