Most middle-market companies raise capital the same way: they call their bank, ask a friend to introduce them to a lender they’ve heard of, or take an inbound call from a fund that’s been tracking them. They talk to one or two sources, receive a term sheet, negotiate modestly on price, and close.
It’s not a terrible outcome. But it’s almost never the best one.
The gap between a single-source raise and a properly run competitive process shows up in rate, leverage, covenants, and structural flexibility. This article explains what a competitive capital raise looks like, why it works, and what you should expect from your advisor.
Lenders and investors are sophisticated actors who price deals based on a combination of your business’s fundamentals and their read on the competitive landscape. If they believe they’re the only option you’re considering, they have no incentive to sharpen their pencil.
When multiple credible capital sources are competing for the same opportunity simultaneously, everything shifts. Lenders submit more aggressive proposals because they know there are alternatives. Investors get off the fence faster. And counterparties who know they’re competing put more work into their proposals.
Competitive tension consistently produces better economics. In a recent FOCUS debt raise, the client’s existing lender — knowing it faced a hungry challenger — sharpened its pricing to keep the relationship, while the challenger competed on speed, flexibility, and structure. The client ultimately split the facility between them in a club deal, gaining competitive pricing from both, access to two product sets, and a new lending relationship without abandoning the old one.
The most important work in a capital raise happens before any lender or investor sees a single document. This phase includes:
Companies that skip or compress this phase consistently run into problems later because the materials don’t hold up under diligence scrutiny, or because the target list is too narrow to generate real competition.
This is the launch phase. The advisor sends a no-names teaser to the target list. Interested parties sign NDAs, receive the full CIM, and are invited to an introductory call or meeting with management.
A well-run marketing process has two important characteristics: it is disciplined about timing (all parties receive materials at the same time and are given the same deadline to respond), and it maintains information symmetry (everyone has access to the same documents so that term sheets are comparable).
Management meetings are where lenders and investors form their most durable impressions. How management presents, how they handle questions, and how well they know their own numbers have a direct impact on the quality of the proposals they receive.
After management meetings, capital sources submit initial proposals. The advisor’s job at this stage is threefold: evaluate the proposals on a like-for-like basis (harder than it sounds, since no two term sheets are structured the same way), identify the most promising counterparties, and create transparency about competition without revealing confidential terms.
The goal is to get to a best-and-final stage with two or three serious counterparties. At that point, the advisor can work each relationship hard to extract the best possible outcome before helping the client select a partner.
Once a preferred lender or investor is selected, they move into formal diligence: legal review, financial verification, management reference checks, and (in many cases) a formal Quality of Earnings report if one wasn’t completed upfront. Experienced advisors manage this process tightly — keeping the counterparty on schedule, managing the client’s bandwidth, and resolving issues before they become deal-stoppers.
Closings rarely happen exactly on schedule. Issues surface in diligence, documents take longer than expected, and occasionally a counterparty tries to re-trade terms based on something it found.
Where deals stall depends on the capital. In debt raises, trouble usually comes after the term sheet: credit committees tighten terms, and agreed economics get quietly re-negotiated in the credit agreement through covenant and EBITDA definitions. In equity raises, the risk is a re-trade on price, as deeper diligence on earnings, working capital, and management gives investors reasons to revisit value. The fix is the same for both: lock down key definitions early, surface issues before going to market, and keep a credible alternative warm so no counterparty feels irreplaceable.
Not every investment banker runs a truly competitive process. Some are essentially brokers who send your CIM to a handful of relationships and present whoever responds. That isn’t a competitive process, and it isn’t how FOCUS works.
When evaluating a capital advisor, ask:
The answers reveal whether the advisor has the network, the process, and the commitment to actually run a competitive process or whether they’ll deliver what feels like one.
One objection business owners sometimes raise to a full competitive process is time. It takes longer than calling one source and getting a term sheet in a week. That’s true. A well-run process typically takes 90–120 days from engagement to close.
The question is whether the improvement in outcome is worth the additional time. In our experience, it almost always is. Better pricing, more flexible covenants, and a better capital partner compound over the life of the relationship. The difference between a deal at 5.5x EBITDA leverage and 4.5x, or between a maintenance covenant package and an incurrence-only structure, can translate to millions of dollars in value and years of additional flexibility.
For a business owner who has spent a decade building a company, spending a few extra months to get the best possible terms on a critical financing is rarely the wrong trade.
Robert Adams
President
President
Whether you’re exploring a sale, raising capital, or simply want an outside perspective on where your business stands, our bankers are ready to listen. Reach out to start a confidential conversation with the FOCUS team.
