By: Monica Stevens
Raising capital looks different for the lower to middle markets. No one knows this better than Alumni Capital Management’s Portfolio Manager, Ashkan Mapar.In Alumni’s approach to investing for one of the nation’s most active funds in the lower middle markets, he has made sure the broader financial health of a potential portfolio company is sound before planning longer term investments.. “The biggest thing that you’ve got to get right is the big building blocks”, he said.
Over the years, he has worked closely with the management teams to strengthen the underlying operational and financial health of the company itself, including making introductions to the fund’s vast connections to top tier legal firms, investment banks, and investor relations firms. . This has allowed management teams to successfully graduate into better opportunities, such as getting its story out to more potential shareholders, institutions, and research firms (the alumni way).
Some companies that don’t implement an effective method of raising capital at opportune times have run into trouble. “What I tend to see is that when companies have great news, they aren’t able to take same-day advantage of raising capital, and instead have to wait a week for a banker to put together a round. By that time, they miss the liquidity and maximum valuation”.
Before the Covid-19 pandemic, several companies in the lower middle markets had no issue raising capital. What they realized when the pandemic hit – and that capital was needed – is that institutions had since tightened their pockets and checkbooks, which made it harder to raise cash.
The pandemic hurt the capital raising landscape as liquidity in the lower middle markets dried up as a result of spooked investors. This, in turn, forced management teams to take on suboptimal debt and raised capital at lower valuations to cover their expenses and weather the storm. “Covid showcased that raising capital as an emerging growth company can be tricky during times of market uncertainty,” Ashkan said.
“It’s the first time I think that you begin to question how appropriate certain capital models are for supporting your operating business.”
Alumni Capital Management’s approach to partnering with portfolio companies blends a favorable structure with putting management teams in the driver’s seat for them to decide when to raise capital.
Alumni Capital Management takes a creative approach to its investment structures, which include equities and credit. These partnerships with companies make up about 60%of its portfolio. The rest of its portfolio consists of long positions they’ve accumulated in beat up, yet fundamentally sound small cap companies in a range of industries.
Then, Alumni Capital Management works with various experienced service providers and advisory board members to create sound investment structures. This partnership approach allows for closer conversations with management teams and collaboration on the creation of a capital markets structure that best suits their needs.
As Ashkan notes, Alumni Capital Management focuses on certain industries that he believes provide the most near-term growth opportunities – healthcare, energy, natural resources, and technology.
Ashkan has worked with various investment banks to identify companies at inflection points that would make great use of a capital injection. Ashkan tapped the industry’s best service providers for their best ideas to make this happen, which led to a recent partnership with a company.
In January, Alumni Capital Management announced that it had signed a financing agreement for up to $5,000,000 with rare disease pharmaceutical company, Quoin Pharmaceuticals, which has four product candidates in its therapeutic pipeline to potentially produce a treatment for various skin diseases, such as Netherton Syndrome. A rare and sometimes fatal skin disease, currently without an approved treatment or cure, is caused by a mutation in the SPINK5 gene. This mutation results in significant skin barrier defects, leading to recurrent severe infections and a marked susceptibility to allergies, asthma, skin cancers, and eczema. Patients also experience severe dehydration, difficulty regulating body temperature, chronic skin inflammation, and stunted growth.
With a deal like this, Ashkan said: “As an emerging manager, it is crucial that we partner with companies that have the potential to positively impact the world. It’s an opportunity to save lives. I will not be able to directly measure that in my investment performance, but hopefully patients will go, ‘this is amazing.’”
Published by: Holy Minoza
