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INVESTMENT BANKING FORUM - LETTERS TO THE EDITOR Q. Can a letter of intent or memorandum of understanding be binding? A. Yes. Enforceability depends on the intent of the parties. Intent may be demonstrated in words or by actions. In most cases a letter of intent may not even be necessary. If one is required, state clearly what, if any, binding obligations are intended. Be aware, even if no binding obligations are intended, a letter of intent may impose a duty to negotiate in good faith. Q. Our incubator is over 10 years old and has been quite successful. Several of its graduates are traded on the exchange. The incubator has developed a plan for a phased expansion that will make it one of the largest and most experienced wet lab incubators in the state of Maryland. We are seeking to raise 2 million into an LLC but we are having a difficult time finding appropriate audiences to make presentations to. A. This is a common problem. Based upon the information provided, it is not clear what the benefit is of an investor investing in the incubator as opposed to the actual companies. Do investors in the incubator get equity in the incubated companies? If you are having difficulty in finding investors/audiences you either have the wrong "story" (i.e., why should an investor invest in our company), the risk/reward equation is out of balance, or you are looking in the wrong places. We would suggest that you reevaluate your strategy based upon the objections you have received to date. Q. Our privately held Company is about to go through a private offering. We would like to structure the Company in order to be able to sell shares to prospective investors that has expressed interest. In addition, the financial structuring of the Company must consider a possible IPO in the relatively near future. How should we structure the Company to consider the above concerns? A. You advise that your company is ABOUT to "go through a private offering." What is the current status of this effort? Generally, a decision about company structure is made PRIOR to proceeding with a private offering. If I might take the liberty of reading more into your question -- the issue is not so much the structure of the company (it should be a corporation) but rather what is the appropriate financial instrument(s) and methods to be used. There are many ways to raise capital each method has its pros and cons as well as costs. With respect to an IPO, again the structure of the company should be a corporation, but more importantly you must answer the question "Why would anyone invest in my company?" Keep in mind investors are not gamblers. If your company has no track record, minimal security/collateral, and the upside is small relative to the risk -- an IPO will not be successful and you will have difficulty in finding Investment Banking or securities firms to represent you. Q. Our expansion strategy includes acquisition of another Company (Companies). Where to we look for prospective takeovers? A. There is no short answer to this question. It depends on what your strategy is for acquiring other companies. Acquiring companies is very complex and if your goals are not clear you can damage your company as well. There are companies for sale everywhere and can be found by working with business brokers, networking, chambers of commerce, investment banking firms, M&A databases, etc. SCH encourages questions on any subject of general interest related to raising capital or managing your business more profitably. When you have entered all the information, click on the "Submit" button at the bottom of this form. Company Information | Client Services | Accredited Investor Services | Market Information | Business News | Home All
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