This section would be better titled an assessment as to the probable success of a specific SME equity offering made privately.  Certainly that is a more accurate description of what is being sought.  However, that title is a bit cumbersome for a catchy service name.

But for a moment think of how profound a goal it represents to be able to create an assessment as to the probable success of a specific SME equity offering made privately.

We know that capital raising (of any type) is an essential task, often repeatedly, for almost every Australian SME.  Actually, for every SME regardless of geography, but we will keep it to only the Australian scenario.

Failure to raise capital is at best a very limiting factor to the growth of every SME, frequently it is the difference between continuation and failure.

What is given less consideration is the impact of our SMEs only having very limited capital choice; i.e. debt, more debt …… very occassionally equity.

What would be the macro economic impact if Australian SMEs had something closer to a parity choice between debt and equity capital?

Arguably, extremely little concerted thought and energy has gone into the questions of SME equity capital, its impacts, benefits, and therefore whether to and/or how to make something closer to parity a reality.

If we can, with some degree of assurance, first answer the question of how big a difference it would make, then perhaps we could start a national economic, business, and political discussion around the subject.  Not another bit of political theatre by one party to gain advantage over their political rival, but something of actual longer-term benefit for ‘ordinary Australians’.

If you are a student of economics that would make for an excellent PhD subject.

There is the risk that you are going to read this page as a product plug for our Capital Raise Assessment, which of course it is, but how important is it to have an idea of the likelihood of actually raising SME equity capital for your offer?

Put that the other way, what is the cost of trying to raise SME equity capital unsuccessfully?  There are so many costs and factors it is hard to know where to start, but:

• distraction from the business;
• lost income;
• lost time;
• lost opportunities;
• actual real costs in preparing and making the offer;
• business and personal reputation costs;
• motivation;
• emotions;
• energy.

As to the value of each cost, that is variable with the offer itself and could range from a minor annoyance, through to loss of business, loss of marriage, bankruptcy, health issues and even the most final cost to an individual.

This is not theorectical to me, it is fact.  Facts that I have seen repreatedly with many clients and for myself as well.  The cost is more often than not substantial, and leaves tremendous scars.

A Capital Raise Assessment is not a guarantee that you won’t still have these costs, just as having any other diagnosis does not mean you will not suffer those ill-effects, but knowledge does give you the power to manage and mitigate those ill-effects.

As such consider your Capital Raise Assessment as the diagnosis, not the miracle cure.

Our research across hundreds of SME equity offers each year, shows that only an estimated 5% of offers are quicky and readily invested into, occassionally (1%) with little or no preparation.

Furthermore, 50% of offers either completely fail to raise equity finance, or raise much smaller amounts and on harsher terms.  These failures are estimated to come at a very high cost of sunk costs, opportunity costs and time.

It is estimated that the lack of proper prior preparation and meaningful assessments costs on average an extra:

$95,000 and 12 months

to the 50% of unsuccessful Australian SME equity offers each year.

The cause is often an unwillingness to engage an experienced and qualified professional to evaluate the offer and aid in the preparation of that offer.

Our Capital Raise Assessment has the potential to save a business $95,000, 4 lost months and a lot of heartache.

Is Lellco’s Capital Raise Assessment unique, and if so why?

The benefits and need for such an assessment have been known for many years.  I have seen a couple of semi-academic versions of an assessment, but they never went the whole way, in that they started very well but broke down quickly in the detail.  So that would mean that the attempt to formulate an assessment is not unique.

What might make our assessment tool unique is that it is never meant to be a simplified and static thing.

Having a useable assessment tool gives an advisory firm a valuable point-of-difference, but to make that tool self-sustaining; i.e. not cost more to deliver than the revenue it generates, it is important to make it a simplified and static model.

This is where Lellco’s assessment will remain different because although we do want its obvious benefits to draw potential clients to us it is also about fulfilling our first purpose, improving Australian SME capital raising opportunities.

For Darren Lelliott it is also of great academic interest because he believes that this tool can be refined and improved over time and with much more data so that it can have a greater benefit to all Australian SMEs.

So when you utilise our Capital Raise Assessment you are not only gaining an invaluable insight into your own venture and how to maximise your likely success, but you are also participating in a large experiment intended to improve outcomes for all future SMEs.

If that sounds academic it unashamedly is and would also make for a great PhD research.  If you know a suitable academic interested in supervising that research please let Darren know.

The mathematics of assessing the success probability is only high school maths difficult, and fortunately we know a clever high school student.

The complexity is in determining the impacting variables, then assigning importance and weightings to those variables.  Doing that requires both many years of practical experience, plus the feedback of many parties.

When we complete an assessment on your offering it involves a lot of research and discussion to understand appropriate input values.

We do not, will not and could never warrant the outcomes of an assessment because the response range of variables is so great, so fallible, and yet so crucial.

Perhaps you could consider it a bit like predicting the weather.  We all like to have a go at it, most often when it is so close to the impact that a prediction allows almost no planning.  Governments know it to be so valuable that every year they spend billions of dollars for continuous predictions that have only a reasonable degree of accuracy.  But it is so important, and the trend of accuracy keeps moving in the positive direction so we are confident that one day, with more data and better predictive tools the accuracy rates will achieve their peak possibility (not complete accuracy).

Today is 25 years into Lelliott’s journey to improve this assessment process, and with more data and better predictive modelling it too will achieve its peak possibility (also not complete accuracy).

The probability of success in equity capital raising will change throughout the process, and while our Success Probability Assessment is intended to be an assessment ideally before commencing the process so as to establish a baseline, give maximum structuring and design guidance, and maximum cost saving, it should not end there.

Just as there are many variables that impact the success probability, and great complexity in the analysis, those variables are likely to shift throughout the equity capital raising process.