The Art of Capitalizing Deals Creatively

Our fund is about to bring in some new principals from some ventures I am working through another partnership.  One of the main concerns from a potential partner was whether or not the fund would bring capital to the deals we are already working through that partnership.  The answer to this was yes, but it brought up many potential other benefits that investors seldom think about.  

A going-concern-type entity brings with it enterprise value.  The operation has value baked from the skill and aptitude of the principals and other folks that contribute their human capital.  One creative way to monetize this value is to create a class of shares where sellers can trade their property in exchange for the shares.  Thus the seller would participate in some form in the project(s) they are trading to the fund.  This could be a distressed property or something as simple as land to develop.  

Take for instance a simple building project where the market value of land is $70k.  The improvements on the land and other fees would total $110k for a total capitalization of $180k for the project.  If one could trade B shares of their company for the land and get the seller to participate in the building project they would immediately capitalize around 39% of the project.  If the fund could then bring the credibilty to get an asset-based loan for half of the improvements that would be another 50% * $110k = $55k = 31% of the total capital needed.  That would leave rougly 30% of the remaining equity to be funded by LPs and/or other JV partners in the deal.  The best part is that the overall ROE for the sponsors far exceeds what they would get if they funded the project with strictly cash.

There really is no end to how one can capitalize transactions creatively with a properly structured fund.  I often see BP posters asking about some company X that wants to sell them some canned product that help raise money.  I am sure there are many quality organizations out there that can help with this.  There really is no replacement for knowledge and experience though and you want to align your raise with someone that has been there and done that for a long time.