Problématique:

Une problématique courante en entreprise est :

• du point de vue de l'investisseur : comment investir sur une courte période et réaliser un bénéfice significatif ?
• du point de vue de l'entrepreneur ou de l'entreprise : comment financer une grosse opération et se débarrasser des investisseurs immédiatement après ?

More often than not, when acquiring or merging, it is possible to use the cash of the target company to pay off investors.

Thus, transaction financing answers both these needs allowing the investor to make a quick profit in case of successful transaction.

Définition

A Fundraising Incubator is a company financing corporate transactions such as a merger, an acquisition, a securities private placement or an initial public offering (IPO) against an equity participation and a put option on this equity participation to the issuer itself.

The put option, issued by the same issuer as the equity participation, ensures the investor that, in case of success of the transaction, it can resell this participation to the issuer immediately after.

Today, transaction financing is the exclusive privilege of all investment banks who make huge profits therefrom.

Objection

One could wonder why not a simple loan?

The main reason is that under most jurisdictions, loans are limited to a certain interest rate percentage, called the usury rate, generally less or far less than 25%. In Switzerland, the federal law limits this usury rate at 15% and makes any interest rate set above that limit unlawful and thus, not payable!

Les investisseurs souhaitent généralement un retour sur investissement plus élevé, car tout investissement de financement de transaction représente un degré de risque important, du moins du point de vue de la perception du marché.

Risk of a Transaction Financing Investment

Le risque lié à un investissement de financement d'opération est directement lié à la probabilité de succès de l'opération.

Therefore, as a rule of thumb, we can say that the transaction financing investment risk is directly linked to the quality of the agreements binding the parties to the transaction and to these parties’ willingness to execute the transaction properly.

Rules of Prudence

Les règles élémentaires de prudence dans une opération de financement d'investissement sont les suivantes :

1. Commitment from both parties.
   Having a commitment from both parties to the transaction provides the safest conditions to the investment. However, this is rare and mostly impossible. Commonly, a transaction financing agreement is entered into between one party to the transaction and the representative of the investors.
2. Réduire le temps de l'investissement au minimum.
   Cette règle plutôt simple a de nombreuses implications, de la logistique aux conditions juridiques. Le représentant des investisseurs, qui doit être un financier ou un homme d'affaires mais pas un avocat, doit regrouper les fonds sur un compte sous son contrôle et vérifier les consentements et la volonté des parties de procéder.
3. Legal terms agreed before start.
   Have all the transaction (key) terms agreed upon before the financing takes place. The investor or his representative must ascertain that the parties are in full agreement on all (key) terms of the transaction.

   While the parties might not be able to bear the cost of all agreements drafting before the transaction financing takes place, they can surely produce a complete term sheet for each agreement needed for the transaction.

   Any party receiving the transaction financing can also take the commitment toward the investor that no other additional or new (key) term shall be required from the other party after the financing takes place, preventing thereby the classic last minute requirement that makes the transaction fail.