IIMagazine.COM - Corporate Finance - VCs Use Staggered... -
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Published on: 1/21/2001
Last Visited: 6/14/2001
In the past , only occasionally would investors bargain down companies into accepting staggered funding to guarantee capital injections , said Kim Jenkins , managing director of private equity at Morgan Keegan.Traditionally , only seed stage companies used these funding methods , added a banker at U.S. Bancorp Piper Jaffray , adding the buzz in the market is that the trend is growing for mid-size and later-stage companies.Investors are most concerned with companies being able to control their capital burn rate to achieve cash flow positive before the following investment round , he explained.For that reason , the investors place milestones , at which point the company can receive its funding.
This structure places power in the hands of investors , leaving private equity bankers scrambling to negotiate deals that work out favorably for companies , but without turning investors off , said Jenkins.[ Companies ] are on a short leash under that structure , and we try to get as long of a leash as we can , Morgan Keegan's Jenkins added.Morgan Keegan has thus far been able to avoid these staggered funding structures , but has had to twist structural concessions in order to make the deals go through , said Jenkins , declining to elaborate.
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