Get cheap money to fund your venture Wednesday, June 06, 2007
By cheap, I mean less than the interbank rate.
Who on earth would lend risky ventures money at such a rate? The BANKS.
According to the Daily Telegraph.
The data shows that average lending by UK banks to non-banking institutions in April dropped to 5.24%, against the then-base rate of 5.25%. The rate was even further under LIBOR, the wholesale cost of money between the banks themselves and traditionally a good deal cheaper than any corporate borrower would get, a full 34 basis points below, as it happens.
The paper attributes most of this lending to involve lending to Private Equity firms. This is a major reason why Private Equity firms can be aggressive bidders for listed companies - their cost of capital is so cheap relative to others. The banks seem to be literally throwing money at such companies. Odder, is that it's not just those that are benefitting from adviser fees eg Terra Firma are reportedly racking up £150m of fees on the EMI deal.
Assuming you are a corporate buyer e.g. Warner looking to buy EMI. You face a sizeable problem when the opposition can borrow much cheaper than you can and hence afford to up their offer on their higher anticipated returns post interest.
One has to question how much longer the banks can afford to be offering such rates to such ventures when factoring in matters of profitability / return on regulated capital.
Anyway, if you are looking to raise cheap money to fund your venture you may want to call yourself a private equity fund and go to a bank - calling yourself an entrepreneur and approaching a VC is way too expensive by comparison.
Labels: private equity
posted by John Wilson @ 9:10 AM Permanent Link
newsvine
reddit
