Finding sources of capital may be your company’s biggest concern or challenge. Los Angeles County is home to a wealth of capital resources for small, medium, or large businesses. This comprehensive list of companies throughout Southern California can help you identify the firm best suited for your company’s needs.
Investment banks are financial institutions that raise equity and debt capital, engineer corporate mergers and acquisitions, perform business valuations and render fairness opinions, among other activities. The majority of investment banks offer strategic advisory services for mergers, acquisitions, divestitures, management buyouts and other financial services for clients, such as the trading of derivative, fixed income, foreign exchange, commodity, and equity securities. Investment banks also assist corporate and government entities in raising capital through issuing and selling securities in the debt and equity capital markets. In mergers and acquisitions, services provided by investment banks include valuing the company, preparing a confidential offering memorandum, identifying prospective buyers, marketing the company for sale, and negotiating the purchase price and terms. In private placement financings or public securities offerings, the investment bank values the company, advises on offering price and terms, prepares the offering circular and markets the securities to prospective lenders or investors, ultimately raising the requisite financing.
Mezzanine/Subordinated Debt Lenders
Mezzanine and subordinated debt lenders (typically insurance companies, pension funds, commercial finance companies, investment funds and other financial institutions) provide unsecured loans to companies. In the event of default, this financing has a lower priority than other debt and is less likely to be repaid in full after all senior obligations have been satisfied. Thus, mezzanine and subordinated debt lenders require a higher rate of return than secured or senior debt lenders, typically reflected in comparatively higher rates of interest and quasi-equity features. Mezzanine financings, a subset of subordinated debt, can be structured either as debt (typically an unsecured promissory note that is subordinate to senior debt) or preferred stock (which is senior only to common stock). Mezzanine financings are usually private placements that are often used by companies with high overall leverage levels. Mezzanine and subordinated debt lenders may require cash interest or interest payable in kind (negative amortization which increases the principal of the loan) and/or an equity stake in the form of warrants, options or a debt-into-equity conversion feature. Mezzanine debt typically does not amortize until all secured debt, which is senior in repayment to mezzanine, is repaid in full.
Private Equity Firms
Private equity firms typically purchase equity securities in privately held operating companies. Private equity firms raise capital primarily from institutional and high net worth investors. The most common investment strategies employed by private equity firms include leveraged buyouts, growth capital financings and distressed investments, primarily in situations where the private equity firm is acquiring control of the company through a purchase of greater than 50% of the company’s equity securities. In a typical leveraged buyout transaction, the private equity firm buys majority control of an established firm using equity in conjunction with senior and subordinated debt to increase the potential return on investment through leverage. Leveraged buyouts (LBOs) are distinct from venture capital or growth capital investments, in which the private equity firm typically invests in young or emerging companies and rarely obtains majority control. Another distinguishing characteristic is that, in an LBO, the owners are achieving personal financial liquidity, with the proceeds from the sale of the company’s securities or assets going to the shareholders, while in a growth capital investment, the financing goes into the company to fuel its future expansion.
Senior Debt Lenders
Senior debt lenders typically consist of banks, commercial finance companies, factors, investment funds and other financial institutions that provide secured corporate debt that has priority with respect to interest and principal over other classes of debt and equity. Senior debt is normally secured by the assets of the company on which the lender has placed a first lien and has a first call on the company’s cashflow for the payment of principal and interest. Principal is amortized over the life of the loan and interest is paid in cash in quarterly installments. In return for the low risk relative to the rest of the capital structure, senior debt lenders provide loans at the lowest cost of capital for an issuer, usually in the form of either a fixed or floating rate of interest pegged to a spread over Prime or LIBOR. In the event the issuer goes bankrupt, senior debt is first in line for repayment ahead of other insecured creditors (trade, subordinated debt) or equity holders.
Venture Capital Firms
Venture capital firms raise private capital from institutional investors and high net worth individuals to provide financing for early-stage, high-growth companies with a view to generating a return through an eventual realization event, such as an initial public offering (IPO) or sale of the company. Venture capital investments generally take the form of cash purchases of equity securities issued by the company, typically either preferred or common stock. Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a subordinated debt offering. In exchange for the high risk that venture capitalists assume by making equity investments in smaller and less mature companies, venture capital firms usually receive significant influence over company decisions, in addition to a significant (usually minority) portion of the company’s ownership.
The LAEDC Regional Center is a partnership between LAEDC and CanAm Enterprises, LLC (CanAm) to sponsor investment opportunities in qualifying projects that meet the requirements of the U.S. Immigration Investor Program (EB-5 Program).
Overseen by the U.S. Citizenship & Immigration Services (USCIS), the EB-5 Program provides foreign nationals the opportunity to become conditional residents for two years upon making an investment of $500,000 in a designated targeted employment area in a new commercial enterprise. Each unit of investment must create at least ten new, direct or indirect jobs for U.S. workers. Once the job creation requirement is met, the conditions are removed and investors may obtain permanent residency in the United States.