The New CFO Financial Leadership Manual, Second Edition

Chapter 15. Obtaining Equity Financing

A key function of the CFO is to acquire equity financing. This chapter is primarily concerned with the offering memorandum, which is the key document used by investors to determine if they wish to invest in a company. This memorandum is designed for private offerings; for more information on a public offering, refer to Chapter 16, Initial Public Offering.

Besides the offering memorandum, this chapter also covers the establishment of a valuation for the offering memorandum as well as equity financing alternatives, such as swapping stock for expenses or cash, issuing stock warrants or shares, private investments in public equity (PIPEs), or the use of Committed Long-Term Capital Solutions (CLOCS), which is a form of insurance that can provide equity financing. Finally, we cover the essential elements of a stock buyback, in case a company finds itself in the reverse situation of having more cash than it needs or wanting to increase earnings per share by reducing the number of shares outstanding.

In the first section, we briefly discuss the general features of common and preferred stock, which are relevant to the subsequent discussion.

Types of Stock

The owners of common stock are the true owners of the corporation. Through their share ownership they have the right to dividend distributions, to vote on various issues presented to them by the Board of Directors, to elect members to the Board, and to share in any residual funds left if the corporation ...