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What Companies Current Capital Needs Are: Q3 2022

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With continued uncertainty, companies are looking to bolster their cash positions. They are unsure of what the future holds. As a result, companies are looking to stack up as much cash in a war chest as possible to manage an off-plan scenario, capitalize on opportunities that arise, or continue to invest in growth. We have yet to see many companies experience performance issues, but most are preparing for possible slowdowns as they don’t know what the next year holds.

We have also found that equity conversations are turning sour – quickly. We have had nearly a dozen clients come to us through the end of Q2 and the beginning of Q3 looking to revisit debt conversations they had previously turned down in order to explore equity. Their valuations during either discovery or diligence have dropped drastically and as a result, companies are looking at non-dilutive growth capital options that won’t unnecessarily dilute their cap table.

As the need for extra cash arises and equity capital becomes less attractive, companies are looking for favorable debt partners. Legacy debt providers are becoming less favored in the space due to restrictive terms, aggressive covenants, and hefty equity co-investment requirements for funding. Companies are looking for debt partners that can underwrite the business, not just the cap table or the ability for the company to raise cash. Being able to have a friendly debt partner is the most coveted feature of any debt facility we’re seeing and they’re willing to pay a little more for it.
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