Raising Capital During Periods of Extreme Price Volatility

Crises in the stock market can be unpredictable and costly. When it comes to raising capital, it’s important to have a plan in place should the market experience extreme fluctuations. Typically there are three ways a publicly-traded company can raise capital. During market uncertainty it is important to look at the pros and cons of each of these methods in light of the market to determine the short and long term implications of each:?

Should you tap into profit and earnings? Companies get started and grow to earn profits by selling their products or services for more than they cost to make and deliver. This is common knowledge. During market uncertainty, it's important to have enough reserve funds to weather any financial storms. Typically companies will give the profits back to shareholders in the form of dividends or buybacks. Normally it makes sense to reward current investors with existing profits and raise capital through investor outreach. Although no one has a crystal ball and can predict what the market will do next, it's important to look at the pros and cons and decide if earnings will be reinvested or distributed.?

Should you borrow the capital needed? There is the option to borrow privately or publicly through corporate bonds. Consideration should be made on what makes more sense, paying out interest to lenders or paying to the investor. Both private loan instruments and bond issuance can have some flexibility in how they are structured. It will be important to structure the instruments in such a way that given more volatility, the company can still pay its debt, survive, and thrive.?

Should major shareholders sell a portion of their shares to raise capital? Although this does mean the major shareholders, typically the founders, co-founders, and those that were there since the beginning would sell some of their equity shares in order to raise capital. It should be noted that this does not require making payments to a bank or bondholders. Selling off shares with a company that has so much potential for growth over the long term would diminish the wealth (at least on paper) of the shareholder. Careful consideration should be taken to make sure the shorter-term benefits during volatile times outweigh the downside.?

There are many things to consider when looking to raise capital. When the market is uncertain, this adds an extra layer of complexity to the decision-making process. Even though there are many aspects to consider, a robust Investor Relations outreach strategy is critical when looking to bring in additional capital. The right brand story needs crafted as well as communicating why and how the company plans to grow in volatile times and why investing is a good bet. All this needs to be carefully crafted and conveyed to a targeted investor community through an effective IR outreach strategy. Reach out- happy to share case studies and insights on what we’ve seen.?

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