Start-Ups: Financing Options and Preparing for Due Diligence
- Mar 15, 2021
- Angela Chen
On February 24, EisnerAmper hosted a virtual roundtable with attendees from both the U.S. and China to discuss financing options and preparing for due diligence. Moderated by John Pennett, Partner, EisnerAmper with guest speakers Frank Xin, Vice President, East West Bank and Hemmie Chang, Partner, Foley Hoag, this was an opportunity for business owners, start-ups, and those looking to acquire funding to get their questions answered.
Below is a summary of the discussion, including key takeaways:
The roundtable discussion covered a variety of financing options, including bank loans, PPP loans, venture capital and debt, cross-border guarantee loans, and more.
- Build up a relationship with your bank early (bank account and letter of credit can be a good start) and be transparent. Banks have different financing solutions, including working capital loans, M&A loans, venture debt, etc.
- Be aware of the capital control policy in China, and work closely with the bank to prepare fund transfers in to and out of China.
- Regarding cross-border financing: work on onshore collateral offshore loan, or offshore collateral onshore loan.
There are a number of considerations involved in cross-border operations. The guest speakers highlighted political complexities; compliance requirements based on local laws, employment and labor issues; and tax and accounting considerations.
- Understand the regulatory constraints and restrictions on cross-border operations and cross-border lending.
- Know when to apply for patents for your intellectual property.
- Make sure to have the licensing agreement for IP in difference jurisdictions.
- Check for adequacy of business insurance in all jurisdictions, etc.
Preparing for due diligence
A number of recommendations were given by the speakers with regards to preparing for due diligence—everything from what to have on your due diligence checklist to how to prepare your business plans and financial models to how to protect your IP.
Get your IP updated and protected before due diligence, ideally even before discussions.
- Be upfront about any issues. Better to raise and address any potential questions in advance than to spring a surprise.
- Have your financial house in good order, including any “transfer pricing” considerations.
- Stage your sharing of information. Leave the most sensitive info (important trade secrets, unpublished patent applications) to the end, maybe even engage an independent third party to review on behalf of the potential investor or partner.
Meetings with investors
The group discussed how to prepare for meeting with investors, while also addressing questions and concerns and different approaches.
- Focus on finding the right investors and strategic partners for your business and its growth trajectory.
- Build up a relationship with partners and investors and keep them well-informed of key milestone achievements.
- Provide updates to the investors, yet know when to close the door, etc.
EisnerAmper’s Technology and Life Sciences Group periodically brings together industry leaders to discuss timely topics that impact innovators and entrepreneurs. These roundtable discussions also give business leaders the opportunity to share their experiences and learn from their peers. Register here to be notified of future events.
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Angela Chen is a Partner in the Private Client Services Group, and has been with the firm for over 20 years specializing in tax planning for high net worth individuals, wealthy family groups, senior executives and privately held business owners.
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