According to Jim Verdonik, founder of Innovate Capital Law, the two-pronged approach to fundraising could be motivated by several factors, including a desire to extend their runway and protect against unforeseen events through the IPO process, during which he says companies’ burn rates often increase due to anticipation of the coming funding.
The other possibility, said Verdonik, is that the company wanted to raise as much cash as possible with minimal dilution.
“They may have also been contemplating doing this debt deal for the purpose of minimizing the amount of dilution.” he said. “If you can do it partially through debt and partially through equity you can minimize dilution.”
If that was the case, he speculated that the company might have chosen to take advantage of a strong economy rather than wait until the end of the process – which could drag on for months or years – when the markets could be different.
“They could have been afraid that the S-1 process was going to drag on, and interest rates were going to rise, so they didn’t want to wait to raise debt offering until their equity offering was done, so why not lock in their interest rate now,” he said.
Verdonik also speculated that it is advantageous for companies to make their balance books as attractive as possible when pursuing a public offering, suggesting the company could have been interested in the increased funding prior to their IPO in order to raise the value of their equity.
“The debt gives them some cash so they have a better position to bargain for a better price for their equity because they’re not desperate for cash,” he said referring to companies in general, not specifically Precision. “The saying is: ‘the easiest way to raise money is if you don’t need it.’”
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