Are CIM’s important, and necessary, in a capital raise?
A CIM, or Confidential Information Memorandum, represents the primary marketing document Kaeros Capital prepares and uses in a capital raise. The document serves to tell your company’s story to various lenders and investors, in a format and presentation they understand.
Because of a CIM’s importance in a capital raise, they do take work, and time. In fact, half of the consulting hours billed in a typical capital raise, are resultant from the work invested to prepare a concise, professional, and well-articulated CIM.
Naturally, because of this time and cost commitment on the part of our clients, we often get asked are CIM’s important, and in fact necessary, during a capital raise?
To answer this question, let us put in perspective what is at stake via-a-vis a capital raise.
You as the business owner have been building your brand, your sales, your community presence, your profits, and your legacy, over many years. Perhaps now it has come time to seek financing to acquire a competitor, sell a minority stake to one of your key employees (known as a management buy-in) or tap into additional working capital financing.
Each of these events could be critical to the future success of your business. If you look at a CIM as a tool to put your company in the best light with lenders, to ultimately ensure funding success, we believe its importance is undoubted.
From a business owner / founder’s perspective, you can you expect to see the following key sections in a finalized CIM:
1. Transaction Overview – the opening section outlines what your company does, year founded, your market niche, your geographic footprint for the sale of your products / services, financial summary, and current sources of financing in your business (e.g. debt, equity &/or shareholder loans). Finally, the new financing ask is laid out in detail.
2. Company and Team overview – this section contains personnel and management organizational charts including biographies for key management personnel, details of key supplier and customer relationships, details of product or service offering, company assets / equipment and premises leased / owned.
3. Market Overview – this section details competitive forces in your industry, discusses key risks facing your business (e.g. supply chain disruption, FX risk, geopolitical, etc.) and barriers to entry. It will also contain information about market opportunities for your business and explanation of how new funds being raised will be put to good use to target those opportunities.
4. Financial Overview – this section provides a summary of your company’s finances (P&L, balance sheet and cash flow statement) typically over the past 3 to 5 years. We will also show a detailed forecast over the next 5 years that shows both where funds borrowed will be deployed in the business and how those funds will be repaid over time.
Each financing situation will contain information tailored to each client. For example, in a mergers and acquisition scenario (M&A) a valuation analysis might be completed on the target you’ve identified to acquire, while in a multi-lender deal with more than one financing partner, a detailed analysis of shared collateral might be important.
I would be remiss if I did not mention that the work in preparing a CIM comes at the end of a more fulsome process of becoming market ready (see read web blog here). Ultimately, our work begins once a majority of the information required to complete the above sections is available. The more upfront work you and your team can do prior to engaging Kaeros, the more comprehensive the CIM will be and ultimately the higher the chances of your business getting funded.
Stay safe and healthy out there!
Cheers, Trevor
Founder and Managing Director