Barracuda Networks Inc., provider of cloud-enabled security solutions, has entered into a definitive agreement to acquire Skout Cybersecurity, a Melville, NY-based leader in cyber-as-a-service software for managed service providers and provider of an extended detection and response platform and service.
Source: Pitchbook.com.
LaunchDarkly, the provider of a feature management platform for software development teams, has raised $54 million in a venture capital round led by Bessemer Venture Partners. Founded in 2014 and based in Oakland, Calif., the company has raised around $130 million in VC financing to date, including a $44 million round in March 2019 that valued it at $288 million. LaunchDarkly's customers include IBM, Microsoft and Atlassian.
From the Launch Darkly Website
LaunchDarkly enables development and operations teams to deploy code at any time, even if a feature isn't ready to be released to users. Wrapping code with feature flags gives you the safety to test new features and infrastructure in your production environments, without impacting the wrong end users.
When you are ready to release more widely, simply update the flag status and the changes are made instantaneously by our real-time streaming architecture.
Additional Investors Include:
Redpoint Ventures, Threshold Ventures, Uncork Capital, Vertex Ventures US, Bloomberg Beta
About Pinewood
Pinewood provides venture capital consulting, pitch deck design, investment teasers, and mergers & acquisitions consulting for high growth companies and investors.
Source: Pitchbook.com.
Wipro Ventures, the corporate venture arm of India-based IT giant Wipro, has raised $150 million for its second namesake vehicle. The fund will be used to help the firm continue investing in tech companies, with a specific focus on verticals such as cybersecurity, financial services and cloud infrastructure. Founded in 2015, Wipro Ventures raised a reported $100 million for its inaugural fund. The firm has backed 16 startups to date.
From the Wipro website:
Wipro Ventures bridges the gap between emerging startups and enterprise customers. Established in 2015 as the strategic investment arm of Wipro Limited, we invest in early to mid-stage companies building innovative enterprise software solutions. As a leading technology services provider and trusted advisor to Global 1000 enterprises, we provide our portfolio companies access to a broad customer base across the world. Wipro’s deep relationships with Global 1000 clients gives us a better understanding of customer needs and market trends, enabling us to provide valuable guidance to our startup partners.
About Pinewood
Pinewood provides venture capital consulting, pitch deck design, investment teasers, and mergers & acquisitions consulting for high growth companies and investors.
If you are looking at businesses for sale near you or how to finance a business acquisition using an acquisition loan, then this is for you. Don’t worry! Even if you don’t have millions of dollars in the bank there is still a solution to help you buy your first business. Let’s jump in.
Most people think that the only way to finance a big business acquisition is to go to their local bank and take out a loan for the total purchase price, borrow, the money, and buy the business.
Well...it is rarely ever that easy…
Just looking for SBA? Apply Here!
While you may be able to obtain a bank loan for a business acquisition there are a number of other more creative ways to finance your business acquisition, other than a typical bank loan.
Many business owners who are looking for a business buyer will be open to financing a portion or even 100% of the agreed-upon purchase price of the business themselves.
While there are a number of ways to structure such a deal, the most common method is to have the business seller effectively grant the buyer a loan (otherwise known as a seller note or take-back financing) where the buyer effectively pays the seller back in monthly payments similar to a bank loan.
In this case, the buyer and the seller will execute an actual note or loan agreement between the two parties that define the payments and the terms in a similar fashion to a bank loan.
The business acquisition seller note financing will have terms such as a number of payments interest rate, default provisions and many other terms that will protect both the buyer and the seller throughout the duration of the note.
It is very common for a seller to finance 20-50%, and even as high as 100% of the purchase price using this method (in fact…our CFOs have negotiated such deals in the past).
If the seller leaves the business in a short period after the transaction tease plays another common method for seller financing is to have the buyer of the business pay the former owner or current seller effectively a commission on the agreed-upon purchase price based on a percentage of revenue profits or cash flow over time.
This is different than a seller note where the buyer agrees to pay the seller of the business a certain number of payments over time and actually treats the financing as a loan.
Financing through commissions or performance is more desirable for buyers and less desirable for sellers since there is no formal obligation to pay a fixed dollar amount over time like a seller note.
However, if it’s structured properly both parties can win and settle the debts for the purchase price more quickly especially if the buyer is able to increase sales and cash flow or quickly and the current owner could ever do
This is common and professional services businesses and other underperforming businesses where the current owner is neglecting or failing to operate the business as efficiently and profitably as another business owner or the new buyer could.
In the end, you pay off the agreed-upon purchase price over time on a flexible basis that helps you buy more of the business equity over time and pay back the owner for their hard work.
The third way to finance a business acquisition used to use private investors to contribute equity or debt into the deal.
Particularly if you are unable to obtain traditional bank financing to buy the business there’s always the offer to bring in outside investors to find a portion of the deal using equity or debt instruments.
Many entrepreneurs have left investment banking consulting big private equity shops to form small funds using their own and some private investors’ capital to identify and execute the acquisition.
In fact, the appetite for business acquisition is increasing exponentially amongst private investors since the current stock markets in venture capital markets around all-time high valuation and small businesses as a whole are thriving more than ever.
So if you happen to have a network of wealthy individuals who can support you and your business acquisition by funding you with equity this can be a clear path to buying your first business using OPM.
We always recommend entrepreneurs building relationships with local bankers as possible so that they can have loans and credit products available to them when they go to launch or acquire their next business.
And while every bank has a different appetite for business acquisitions and different specialties it is widely accepted that a well-researched business acquisition in a strong in a growing industry has a great chance of being funded by a traditional bank.
Common banking products used to execute a business acquisition include a business line of credit, a personal line of credit, a home equity line of credit, commercial term loans, equipment financing, and SBA loans to name a few.
One of the most popular and favorable options is many times the SBA loan. SBA loans offer up to 10-year loan terms for business acquisition and working capital loans and are a great option to buy a business.
If you were on sure how to approach your banker to discuss business acquisition financing recommend starting with your local business banker today.
One of the least understood and least utilized start-up acquisition financing vehicles available to people today is the 401(k) ROBS financing option.
Over 30 years ago the IRS created the option for entrepreneurs to take existing funds in their retirement accounts with their prior employers and allow them to roll those funds into their newly formed companies to invest in startups real estate and business acquisitions, including their own businesses.
Our partners at Guidant Financial have a thorough 401(k) ROBS conversion service that allows entrepreneurs to find their business ventures using money that they currently have invested in stocks bonds and ETFs with their employers.
Disclaimer: We recommend you speak with your financial advisor and CPA before initiating any retirement account changes.
However, if you consider that you’ve been investing your retirement funds into stocks bonds and funds of companies that you have never met and had zero control over it may make sense for you to finally be able to invest your hard-earned savings into your own business venture especially if you know what you’re doing and you are confident that you will be successful.
We hope this article has been informative and educational for you understanding how to finance your next business acquisition.
If you were driven and you have identified a great business acquisition opportunity in an industry that you understand no well and can succeed in then you should be able to craft a business acquisition offer that suits the goals of the current seller and you and your family.
Get Help: Book a Free CFO Call
Start forming relationships with bankers private investors attorneys and accountants to identify your next big business acquisition opportunity and make sure that you have your financing options prepared so that you can add quickly and executed deal when the right opportunity arises.
Good luck and be well!
Chad Pavel, CPA
Section 1202 allows you to sell a qualified small business corporation (QSBC) on a tax-free basis.
Now, add to this no-tax-on-sale benefit to the 21 percent corporate tax rate from the Tax Cuts and Jobs Act, and you have a significant tax planning opportunity.
You sell your C corporation. The sale produces a $6 million capital gain to you.
Your federal income tax bite on the $6 million of gain is zero. Yes, you are awake. You are reading this correctly. The tax bite is zero.
Internal Revenue Code Section 1202 establishes the rules for the zero tax bite. To get to zero, you need to operate your business as a tax code-defined QSBC.
You may already have a tax code-defined small business corporation, or you may be thinking of starting a new business as a small business corporation. Paying zero taxes on the sale of your business stock is a big incentive.
To qualify for tax-free capital gains, you must acquire your QSBC stock after September 27, 2010.
Of course, there’s more than one rule. You must hold your QSBC stock for more than five years to qualify for the tax-free treatment.
Your beloved lawmakers impose limits on your tax-free capital gains from the sale of a particular QSBC. In any taxable year, the tax limits on your eligible gain exclusion may not exceed the greater of
10 times the aggregate adjusted basis in the QSBC stock you sell, or
$10 million reduced by the amount of eligible gains that you’ve already taken into account in prior tax years from sales of this QSBC stock ($5 million if you use married filing separate status).
You are a married joint filer. You invested $100,000 when you started your C corporation in 2012.
Now, in 2019 (more than five years after the start), you sell the stock in the C corporation for $6.1 million. You have tax-free capital gains equal to the greater of
$1 million (10 x $100,000), or
$6 million (because it’s less than $10 million).
You have $6 million of tax-free capital gains.
You are an unmarried individual. You invest $2 million in a single QSBC stock this year.
In 2025, more than five years from now, you sell this stock for $24 million, resulting in a total gain of $22 million ($24 million - $2 million). The tax code limits your tax-free gain to the greater of
$20 million (10 times the basis of the stock), or
$10 million.
In 2025, you have $20 million in tax-free capital gains and $2 million in taxable capital gains. You have to be smiling.
To be eligible for the QSBC gain exclusion, the stock you acquire must meet the requirements set forth in Section 1202 of our beloved Internal Revenue Code. Those requirements include the following:
You generally must acquire the stock upon original issuance or through gift or inheritance.
You must acquire the stock in exchange for money, other property (not including stock), or services.
The corporation must be a QSBC at the date of the stock issuance and during substantially all the period you hold the stock.
Next, you have to look at the rules that apply to the corporation. To qualify as a QSBC, the following rules apply.
The corporation must be a domestic C corporation.
The corporation must satisfy an active business requirement. That requirement is deemed satisfied if at least 80 percent (by value) of the corporation’s assets are used in the active conduct of a qualified business.
Beware. Qualified businesses do not include:
the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any other business where the principal asset is the reputation or skill of one or more of its employees;
banking, insurance, leasing, financing, investing, or similar activities;
farming (including raising or harvesting timber);
production or extraction of oil, natural gas, or other natural resources for which percentage depletion deductions are allowed; or
the operation of a hotel, motel, restaurant, or similar business.
The corporation’s gross assets cannot exceed $50 million before the stock is issued and immediately after the stock is issued (which considers amounts received for the stock).
Pinewood Consulting’s CPAs will help you assess your tax savings potential through a free consultation. Book yours today with Chad Pavel, CPA.
