Financing Small-Cap Companies: A Director's Guide

That’s how I would have titled this excellent book by Adam Epstein. Instead, look for The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies. While it briefly touches on other topics, the key focus is plain in the following statement from the introduction:

…one of the least appreciated reasons why otherwise promising small-cap companies fail to graduate to mid-cap size and beyond is the systemic failure of directors to adequately appreciate and understand the nuances of corporate finance and capital markets.

Directors who read the book will be much better prepared to negotiate a path for their company to achieve stock liquidity, adequate research coverage, a following among institutional investors, and a healthy balance sheet.  I’m not sure it will help them form the “perfect board” but it should help them survive long enough to begin thinking about such possibilities.

Each chapter begins with a helpful list of key considerations for directors and a list of common mistakes to avoid. Key points are highlighted at the end of each discussion and helpful tips and examples guide the reader to ensure understanding.

What are the pros and cons of restricted common stock, a fully marketed follow-on offering, convertible preferred stock, convertible notes, at-the-market offerings, equity lines, a registered directo offering, a confidentially marketed public offering on warrants? How will you know the optimal financing structure for your company, select the right bank, or ensure board members play the right role in investor meetings and roadshows? Epstein provides a typology to guide you through to negotiating the right terms, avoiding common mistakes.

I’ve already recommended the book to the board of one small-cap I recently invested in and to the CEO of a start-up I am considering. I’ll be expecting some interesting discussions with directors at both firms in the coming year, thanks to what I learned from The Perfect Corporate Board. Don’t go public without it.

See also, A Handbook for Small-Cap Corporate Boards reviewed by  on December 28, 2012, Businessweek.

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