Ca$hing Out 14: Deal Fatigue & Structuring a Raise

Dan Humiston, his co-host Dena Jalbert from Align Business Advisory Services and the MJBulls legal advisor Larry Mishkin from Mishkin Law and Hoban Law Group discuss strategies to manage deal fatigue and creative ways to raise capital without giving up control. 

Produced By MJBulls Media

 

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Larry Mishkin:
A second way to do it is is something that typically comes up more in the context of when talking with people about 280E how to try to step around that that's creating multiple entities. So you have your your operating business will follow that business a name you want to raise money for business.

Dan Humiston:
Hello everyone. Welcome back to cashing out brought to you each week by hope and law. With me today is my co-host Dina jalbert from a line business advisory services Hey Dena. Hey dan. And also we have our legal adviser attorney Larry Mishkin from the Mishkin Law and Hoban law.

Dan Humiston:
Hi Larry.

Dan Humiston:
So Dina we've kind of been in a holding pattern for the last couple weeks. Okay take a minute to give our listeners an update.

Dena Jalbert:
Absolutely. Yes things have been a little quiet. A brief dance because we've gone in a bit of a chicken and egg scenario. So there's always a point in every deal where we're kind of at that time sort of the arm reaching to ally and negotiating certain key points and there is an exchange of information. And once that information is dependent on one or more parties and then you're coordinating calendars and trying to get that information. And so while China keeps the momentum and so it gets to be kind of a weird awkward place where things go a little quiet and that's kept where we are. So he's gotten some really great interest like the interested parties have independent come down to where we're ready for some final terms we're in the process of procuring some additional information for them so that they can in turn formalize potential central offer and seller hopefully within just a matter of days. That's not happening. But that's why we've been a little quiet of recent.

Dan Humiston:
Yes it's a little fatiguing. You know it's frustrating from you go in at a certain pace for a while and then you the pace changes. How do you keep your feet pretty calm.

Dena Jalbert:
And I love the way that used to be because we call it deal fatigue because in the beginning you're really excited. Everyone's excited. There's something to that rush of adrenaline and we're really doing that. And then you're getting it we're getting feedback from folks in the market. They're having really great conversations. I think it's moving on quick and there's momentum and then there can be a point where it's almost like preaching how can the calm before the storm derail. We're in it. It's frustrating. It's emotionally tense that you're very you're getting offerings. You're in the red down there I'm there and there's always just the last minute hurdles in administration. And because that the folks that you're interacting that have to go talk to their people and there's a kind of consensus there has to build on both sides and negotiating terms. And it kind of goes quiet. And it's really frustrating sometimes we see buyers get just really tired. And this is why I said so. And thank you for joining and say you know I forget it like this is I just don't ever going to get better. I think I'm way in. Is just another time. What we do to quell that fatigue is one that would be on your information to some people here. I'll have a quick follow up call between the parties there and reinvigorate like remind everyone why we're so excited about that even sometimes too much of the week or two beforehand. I like it right. I am saying data point to the path back to potential buyers. For example you know the New York show sold out for money here and that's information that we shared to the buyers with the hemp. Remember this is the great. Look at that. Let me say this but you on it and vice versa.

Dan Humiston:
The way that we kind of keep things going as long as our listeners are through their heads happening here. We can hang in there. I'm glad that you gave us their perspective.

Dena Jalbert:
One good point is one of the interested parties actually reached out and said hey you know kind of selfish thing. Let me just get it going. And I think that's a really good example of the buyers that can train their hands near a certain should. Yes just as much as well. So sometimes that law actually push them back a little bit and sometimes they really feel like OK you can't get me pick me refresh and that's fine I'm still going too far because I'm tired. You know you kind of have to manage that. So and we have that happen.

Dan Humiston:
Yeah it was good news. Well let's switch gears every episode that we've done so far we've looked at it through the lens of a seller. What if we switch gears and we look at it through the lens of a buyer. And the reason I've seen this is because we've gotten a couple e-mails from people that said we've tried to buy a couple of companies and in the end it didn't work out because didn't have the cash. How would a buyer get creative in bringing in additional cash for an acquisition.

Larry Mishkin:
So what are some ways that people in that situation need to make an equity raise. We want to maintain control of their business can do. The first one is just a very standard response that goes back to something we may have also talked about previously which is where you're going into a cannabis business what is really your best place of business is to see corporate US Corp. an LLC and I'm looking to get into all of the various differences among these different types of entities other than to say the LLC is almost always preferred with businesses of this size because it gives you tremendous tremendous flexibility in terms of how you structure your business. So unlike a corporation where everyone here shares of stock there's only voting and nobody shares a stock. And if you're going to if you're going to pay money out you have to pay money out to everybody and it can be very complicated with an LLC. You can have as many classes of ownership if you want Class 8A classes even that around the alphabet again. Now you're the owner of a business and you want to make an equity raise create a class B make it a way for you to have it there obviously flowers a B shares but the way I'm going to set it up as a Class B shares are not going to have voting privileges.

Larry Mishkin:
And then what I'll promise that that exchange is that for the first year I think we make a distribution for the distributional swing to 60 40. So they get their interest paid back and then we go forward. So now what you've done is you've you've given these people an opportunity to get preferred returns and you're maintaining total control of the company a second way to do it. Is this something that typically comes up more in the context of when talking with people about to eat and how to try to step around that that's creating multiple entities so you have your or your operating business will follow that business a name you want to raise money for business. So you're going to go out you're going to try and raise money but again you know you have to be concerned it may get a that they looted what's going to happen how do we. This one where we've been advising clients to do this is to form a second entity. And the second entity becomes the fundraising. And people invest their money in the second entity understanding but the second entity is then going to take all of that money and invest it in the operating.

Larry Mishkin:
So the people who are investing in the second entity their money will ultimately be being used by the first entity and therefore whatever kind of return they think they can get there they'll be able to get. But the nice thing for the operator has to be because it was all about money from then it comes in as one investor only through this entity which is now investing in the upgrading and it gives you the ability to bring a large number of people who all have various ownership interests for the investment entity. But that's a separate issue from your operating entity though you get all of the money and when that investment is she makes the investments into your operating business and you get to limit the reach of the power that it has. So you know just really quickly those are two ways for people either with existing businesses who are looking to raise money or for people who are afraid of play in of business and want to think about different ways to raise money without having to give up control or ownership interest of these therapies and those are pretty creative ideas where we can say Dena.

Dena Jalbert:
Now I was just in a day. We'll see that's a lie. And especially in the industry. Sometimes people overcomplicate their structure. They think because of regulation and taxation. We've seen a number of reeling in complex legal structures and entities all over the place. But not having that singular investment. And again I think Larry that is a really important point because investors want to follow the cash flow. When you look at a big chart and it's all over the place and it's hard to follow if I'm confused by it I'm not going to take the time to go here and just figure it out. And I think that's a really excellent piece of advice for low level references. Don't overcomplicate it. That one investment energy will allow you to structure things the way that you absolutely wanted to keep it.

Dan Humiston:
As I say simple stupid for investors to be able to invest in those are really creative ways to do this. But I would recommend not to do this on your own. This is probably something that should work with your legal counsel and this one to make sure that this setup the way that that works best for you so to Dina's point we don't overcomplicate anything.

Dan Humiston:
It. I that you'd like that one. Let me say quickly if anybody has any other questions let me again.

Dan Humiston:
This was a question from one of our listeners if anybody has any questions shoot us over an email that connected MJ Bell's dot com we'll try to bring it up in one of our shows. I want to give a quick thank you to Jamie Humiston for composing the music. One other thing I have Larry's and Dena's contact information on the web MJBulls Web site. So if anybody wants to get in touch with them please use those links. Guys thanks again for this week. Hopefully Dena next week we have some energy and we have some good stuff to talk about.

Dena Jalbert:
Yes absolutely. I'm hoping to tap into the breakthrough in the sun starting early next week.

Dan Humiston:
Guys have a great week. And for our listeners we will see you again next Sunday on cashing out.

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