Below is a free-to-watch video module on basic financial modeling. A financial model is a tool used to forecast a business’s results and is designed to be able to evaluate multiple scenarios. Investment bankers are expected to be experts in financial modeling. This video is one of three video modules in our series: Basic Financial Modeling. Click here for part two of this series. Click here for part three.
This video was taken from our Certified Investment Banking Associate (CIBA) program which is the investment banking certification and training program hosted on our BusinessTraining.com platform.
Video Transcript Summary of Basic Financial Modeling:
The first step is to forecast Income Statements (IS) to the EBITDA.
Forecast key balance sheet items.
Setup cash flow statement including operating and investing activities.
Link capital improvements from cash flow to PP & E line on the balance sheet and link depreciation on the balance sheet to its line on the IS.
Perform depreciation calculation on IS.
Setup debt and interest schedule including: interest rates, beginning balances, new borrowing, amortization of new or existing borrowing, and ending balances and interest amounts.
Link interest to IS. Continue IS forecast through bottom line.
Link debt balances to balance sheet.
Input line of credit borrowing repayment calculation on cash flow statement and link its activity to debt schedule.
Finally, link ending cash from cash flow statement to top of balance sheet, calculate interest earned on cash on income statement.
This is only part one of a series on basic financial modeling. Click here for part two of this series. Click here for part three.
Below is a free-to-watch video module on valuation overview. As Joseph Perella of Perella Weinberg Partners writes in his investment banking textbook, “Valuation is at the core of investment banking. Any banker worth his salt must possess the ability to value a business in a structured and defensible manner.” Hopefully, that highlights how important valuation is in investment banking.
This video was taken from our Certified Investment Banking Associate (CIBA) program which is the investment banking certification and training program hosted on our BusinessTraining.com platform.
Video Transcript Summary of Valuation Overview:
Valuation is at the core to nearly all investment banking transactions including: mergers and acquisitions deals, an equity offering, in a debt offering, and in restructuring transactions.
There are several concepts of valuation such as: market value, intrinsic value, and book value.
The total enterprise value is a measure of the complete value of a business.
To find the total enterprise value you add equity value and debt less cash balance.
It is important to use fully diluted shares.
Financial maneuvers do not affect total enterprise value.
There are three common valuation techniques: the comparable company analysis, the discounted cash flow analysis, and the precedent transaction analysis.
Other valuation techniques include: the leveraged buyout analysis, accretion/dilution analysis, and contribution analysis.
In other free financial training videos we will explain some of the more complicated concepts discussed in this video. Until then, I hope that this video has provided you a strong valuation overview.
Below is a free-to-watch video module on mergers and acquisitions process. Learning the mergers and acquisitions process will help you better understand the role that M&A plays in global finance and how these often complex deals are negotiated and finalized.
This video was taken from our Certified Investment Banking Associate (CIBA) program which is the investment banking certification and training program hosted on our BusinessTraining.com platform.
Video Transcript Summary of the Mergers and Acquisitions Process:
Why do companies go through the mergers and acquisitions process?
A company may want to augment its existing business.
Or it could seek to expand the geographic reach of its business.
A company may want to enter a new sales channel.
A buyer may recognize that it will gain significant operating synergies.
Some firms buy businesses to prevent their competitors from doing so.
Investment bankers may have brought a potential deal to management’s attention.
Financial buyers may see an opportunity for excellent investment returns.
The buyer may gain access to a new top-notch management team.
The financial buyer, such as a private equity firm, may have experience turning around struggling businesses.
The process is a two round process: the first one is when the investment bankers will put together a list of potential buyers and then send out executive summaries and teasers to those potential buyers.
Next, an offering memorandum is put together that will include relevant information, legal info, and an overview of the financials for the firm.
Then, the bankers will include a non-binding letter of intent that will lead these potential buyers to round two.
In round two, the investment bankers will work together with management to put together a presentation.
In the management presentation, potential buyers will see the management team in action presenting the business to bidders.
Then, a data room visit is arranged where junior bankers provide bidders with access to more detailed information than what is included in offering memorandum.
Investment bankers (and lawyers) then put together a draft purchase agreement which is distributed to the potential buyers along with bidding instructions.
The bankers then receive final bids (typically in the form of marked-up purchase agreements) and work with these clients and their lawyers to put together a definitive deal.
I hope that this video has provided you with a step-by-step guide to the mergers and acquisitions process.
Below is a free-to-watch video module on debt restructurings. A debt restructuring is a transaction in which a company alters the terms of its debt obligations. This is a critical concept in investment banking, financial analysis and corporate finance.
This video was taken from our Certified Investment Banking Associate (CIBA) program which is our investment banking certification and training program hosted on our BusinessTraining.com platform.
Video Transcript Summary of Debt Restructurings:
A debt restructuring, sometimes referred to simply as a restructuring, is a financial transaction in which a company alters the terms of its debt obligations.
The transaction normally involves a financially distressed business.
The goal of a debt structuring is to ease debt restrictions in order to continue operation of the company, or just to recover as much funds as possible for the creditors.
A debt restructuring can take a variety of forms including: an in-court restructuring known as Chapter 11 bankruptcy where the company emerges to continue on.
A Chapter 7 bankruptcy is basically just a liquidation of assets to recover funds for creditors.
The results of a debt restructuring can include: a debt-to-equity swap, altered debt terms, raising new equity and distressed asset sale.
I hope that this video has made you more familiar with debt restructurings and how companies and creditors will turn to this transaction as a resort for distressed businesses.
Below is a free to watch video module on discounted cash flow valuation. This is a core concept that you must understand well if you are going to work in financial modeling, investment banking, or complex financial analysis.
This video was taken from our Financial Modeling Specialist (FMS) program which is our financial modeling certification and training program hosted on our BusinessTraining.com platform.
Video Transcript Summary of Discounted Cash Flow Valuation: Coming soon…
This video will provide you with an overview of financial modeling. This is a complex topic that cannot be grasped fully within just a few days. If you are looking to learn more about this subject however this video will help you out.
Video Transcript/Summary of What is Financial Modeling:
A financial model looks at historical performance of a company and enables you to make reasonable and realistic assumptions on future growth for a company’s revenue, income, earnings, cash flow and so forth. Virtually every business decision can benefit from the use of a financial model but it is important to remember that the model is a guide, rather than simply the decision maker.
The three components to an integrated financial model are the (i) Income Statement, which depicts net profit or net income, derived from revenue or sales – expenses – taxes (ii) the Balance Sheet which discloses assets, liabilities and owners equity (ALOE) and finally (iii) the Cash Flow Statement, highlighting cash from operations, financing and investing.
Sales – Cost of Sales = Gross Profit. This gross profit divided by revenue gives us the gross margin. Once we subtract the operating expenses from the gross profit, we are left with the operating income. Operating income – taxes = net income.
Earnings per share (EPS) is an important number for public companies and in particular, analysts on Wall Street and is simply the net income divided by the number of shares outstanding. Diluted EPS is generally a more accurate number and will typically be slightly lower than basic EPS.
Current Liabilities on the Balance sheet are shorter term whilst Long term liabilities are longer term. Assets will equal the combined liabilities and equity.
In the cash flow statement, adjustments are made to the net income figure to remove non-cash items such as depreciation. Most of these figures come from either the income statement or changes in the balance sheet. Adding up the operating, investing and financing cash flow figures, you get the cash at the end of the period.
A good model should allow the easy review of operating income, ebitda, net income, cash from operations and debt coverage. As the modeller, you can decide to build a one-off model or a template model but you need to be able to understand financial statements, how they are interlinked, and how they are realistically projected. Your models should be built in Excel so you need to spend time learning about it.
Keep the model as simple as possible and do not take the model results as gospel. There are many assumptions that are made so use it as a guide and reference point. Before creating the model, you need to consider the big picture and assumptions you believe appropriate to go into the model. Ensure the layout is consistent in terms of font and formatting. Only provide one input cell for any one variable.
Avoid hard coding numbers into your model and break long formulas into small components. Use absolute references where you can and check the parameters on excel functions. Know the numbers well and use the Excel help function. Finally, save the file often as you build the model and consider saving different versions as back up.
Below is an expert audio interview that our team conducted with financial analyst expert, Dr. Edward Weinberg. Listen to this interview if you want to learn how to be a financial analyst.
Dr. Edward D. Weinberger: Edward is a PhD and CEO of Post-Quantitative, Inc. and a Professor from Polytechnic Institute of New York Unvirsity. Dr. Weinberger is an expert on the application of math and finance best practices used to improve bank business models and operations. (Download this Expert Audio Interview in MP3 Format)
I have worked many years in capital raising, sales and hedge fund marketing and I want to share some free advice on hedge fund marketing with you today. In the following video, I share with you a common piece of advice that is pretty obvious but overlooked, a not-so-obvious piece of advice and a strategy that you can use in your hedge fund marketing.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Common knowledge is not anywhere near as valuable as specialized knowledge.
Focus on specialized knowledge more than general knowledge and you’ll see an increase in your productivity and marketing success.
There is no magic bullet that will instantly help you raise capital.
If you want to have what others don’t, you have to do what others won’t. Hedge fund marketing takes hard work. “Suffer now and live the rest of your life as a champion.”
Understand your hedge fund investor avatar to really target who you are marketing to. If you try to raise capital from all types of investors you will fail.
Transcript of the Hedge Fund Marketing Video
Welcome to this video on Hedge Fund Marketing. This is Richard Wilson and this is one of my favorite topics to do training and live workshops on because my passion is capital raising, marketing, sales, influence and persuasion, positioning, authority building and all of that relates directly to hedge fund marketing. So what I’m going to do with you today is share with you a common piece of advice that is somewhat obvious, a piece of advice that’s not obvious and then one strategy you can use in hedge fund marketing.
The one thing that’s obvious but most people don’t focus on enough in hedge marketing is the fact that common knowledge is not worth nearly as much as specialized knowledge. Common knowledge that’s not directly applied to something functional would be like memorizing pie out to 2,000 digits. That’s a general knowledge that’s not directly applicable to something valuable. A specialized knowledge would be if you read every book on marketing and you spoke and met with every hedge fund marketing expert in person and took notes and wrote up notes on everything those people said and combined those two pieces of knowledge, that would be very specialized knowledge and that would be worth a lot of money.
So folks on specialized knowledge as much as you can and stop reading the general newspapers, stop seeing the car crashes on general TV and start reading more books on marketing and sales and taking training programs on hedge fund marketing and you’ll really see a huge difference in your productivity and the results you get.
Now, here’s sometimes it’s not too obvious, is that most people when they start looking as hedge marketing, they’re looking for a magic strategy that’s going to raise them a lot of capital. There are lots of strategies. There’s a whole buffet of ideas you can use to raise capital but there is no magic bullet, there is no one strategy that exist that’s going to help you raise a lot of capital, so you just know that right off the bat. So I think most people look for that often and it just doesn’t exist.
Another quote I like to say often in my training programs is that “If you want to have what others don’t you must do what others won’t.” And I think that’s a quote from Brian Tracy who we actually just interview a few weeks ago, so you can listen to my interview with him within our training programs or on YouTube as well. And what this quote means is that if you want to be good at doing hedge fund marketing you should do the hard work that others won’t to be good at hedge fund marketing. You have to do the research, you’ve to meet in person with people, you have to follow up more often, you have to add more value to them first because most people are too lazy to do that.
Hedge fund marketing takes a lot of planning, hard work, and long-term strategy. But that’s a good and bad thing. The bad thing is it’s challenging. The good thing is there’s huge rewards if you can get good at hedge marketing whether you’re running your own hedge fund, working as a third-party marketer or a consultant of some type, or if you’re just working as a capital raiser within a large organization.
Another quote I’d like to bring up in my training program is by Muhammad Ali. Everyone says he’s the most talented person of all time. But really if you look at his life history, he really just trained himself more than anyone else around him. And he even says here in this quote, “I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.’” And the reason I say that here and read his quote is to show that even Muhammad Ali who was considered so insanely talented had to work very, very hard and you’re going to need to if you want to succeed in hedge fund marketing. It’s going to be easy.
Now, one concept I want to share with you today instead of just telling you things that are somewhat obvious or not obvious to you already is the concept of the Hedge Fund Investor Avatar. This is something that we cover for a full hour, hour and a half within our full day live workshops because it’s so important that you get this. And in fact everything else that we train and teach on, on hedge fund marketing lies on the foundation of knowing exactly who your hedge fund investor avatar is.
So what is an avatar? It has nothing to do with the recently popular movie. Avatar means that you have a very well-defined picture of who you’re marketing to, who that investor is you’re trying to reach out to and who you’re trying to raise capital from. If you try to raise capital from all types of investors, you’ll fail. If you don’t know the specific needs, challenges and fears of the investor you’re approaching, you will fail. Many times you can have a well-defined avatar and you can still fail because it is so challenging to raise capital so you need every trick in the book that’s compliance approved and legal to get it so that you can raise capital consistently because it is very hard to do even if you’re intelligent, hardworking and focused.
So what is a hedge fund investor avatar look like? Basically, let’s give an example to make this a little bit easier to understand. If you’re a $100M hedge fund you could be marketing yourself to family offices. You need to understand how family offices as ultra high-net-worth wealth managers operate, how they invest, who they typically invest in, what they expect of their investment managers that they work with and really understand everything about how that family office operates so you can add value to them first, communicate with them on a peer level and get them to invest in your hedge fund.
If you’re a $1M hedge fund or let’s say $10M hedge fund, you might focus on some mid-level to small wealth management firms that invest in hedge funds that are kind of up and coming. This is because wealth management firms that are small to medium size have lower due diligence requirements than very institutional investors who will never work with a $10M size hedge fund that just want to invest with you because you’re too small of an operation.
So if you’re approaching a wealth management firm you need to get inside their shoes and understand, you know have they been burned before by investing in small hedge fund managers? Are they scared of hedge fund managers who have offices based out of their house? Are they scared to invest in hedge fund managers that have no employees or no board of advisers? Do they expect you to have certain types of audit firms or service providers? You need to understand everything about that type of investor that you’re focusing on and then craft all of your marketing materials, everything you do, the types of e-mails you send, how often you call, whether you’re requested to meet in person, what fees are you charging, everything in your hedge fund business should be formed around those 1 or 2 investors that you’ve identified as your number one focus for growing your hedge fund.
Often times people say “Well, we’re approaching all types of investors.” That’s a losing strategy. You need to figure out where 60% or 80% of your assets are going to come from or where they have come from in the past and focus on that for your hedge fund investor avatar. This is really kind of an advanced strategy in hedge fund marketing that nobody really ever talks about in our industry. But it’s pretty common in the marketing industry to talk about doing this and I think more hedge fund managers need to be doing this. So I encourage you to look into this, practice it, identify who your investor avatar is and hopefully we will see you in person one day in one of our live training programs or workshops or within our certified hedge fund professional designation program.
This is Richard Wilson and keep in touch and we’ll talk to you soon.
Hedge fund marketing is tough work, that’s why I am providing you with these free resources to improve your hedge fund marketing strategies and raise more capital. I hope that you can take the lessons in this video to improve your hedge fund marketing.
The following audio interview is borrowed from our BusinessTraining.com platform and was originally recorded for our financial analyst training program. Richard Wilson is the founder and CEO of the GTC Institute, LLC and the Hedge Fund Group. His background is in risk consulting, capital raising and investment marketing. Richard is the author of several books and often speaks at global conferences on finance and alternative investments. In this expert audio interview, Richard shares his experience in finance and provides several finance career tips. (Download this file in Mp3 format)
In the following video, I explain what types of investors that hedge funds pursue, why they target these investors, how that changes as a hedge fund’s assets under management increases and why it is important that you understand this concept if you are in the hedge fund industry, looking to raise capital or starting a hedge fund.
Video Transcript/Summary: The strategies and tips provided within this video module include:
If you are a hedge fund that manages $100,000 to $10 million then you are really limited in what investors you can target.
At this small of a size, you should look to hedge fund seeders, friends and family, and small wealth management firms.
The next group is $10 million to $100 million. There is a small percentage of institutional investors and fund of funds that will consider hedge funds of this size.
At this level, your sweet spot is wealth management firms, high-net-worth individuals, seed capital providers and small family offices.
Once you reach the $100 million+ AUM level you are “institutional-quality” and you have many more doors open to you in capital raising.
When you get to this level you can market your hedge fund to family offices, institutional investors, wealth management firms, etc.
At $1 billion all doors are open and your concerns will likely shift to performance, business management, risk management and other non-AUM aspects of your hedge fund.
Transcript of Hedge Fund Investors:
Hello, this is Richard Wilson and welcome to this short video on Hedge Fund Investors. In this video I’m going to explain to you what types of investors hedge funds go after, why they focus on those types, how that totally changes as the hedge fund moves from a $1M to $30M to a $100M to a billion dollars plus, and why it’s really important to understand this concept if you’re working in the hedge fund industry, looking to raise capital or running your own hedge fund.
Surprisingly a few people in the industry go through formal hedge fund training and that is why lots of people can work in the industry for years without knowing some of these basic facts about how it operates. Now to start with, let’s look at the bottom of the pyramid. If you’re a hedge fund that has $100K to $10M in capital under management within your hedge fund there is very limited number of investors you can go after. And before I even start to label any of these please know that all of these types of investors are generalizations. The type of investors that you can go after in your country, in your state for you to have a hedge fund could be different.
So these are general guidelines, what types of investors hedge funds typically go after. It’s not set in stone and don’t take any action with hedge marketing or capital raising till you’ve spoken with somebody in your compliance department or an attorney that’s an expert on these issues. But now if you’re a hedge fund that manages a $100K to $10M in capital pretty much have limited options in the front of you. You can go after friends and family, small wealth management firms or some hedge fund seeders or fund to fund that seed small startup hedge fund managers or emerging managers as they’re called.
Really your options are limited here because people don’t trust that you’re going to be in business a year or two from now. They don’t trust that you have a talented team typically, that you don’t have a long enough track record, that your business really isn’t set up yet or profitable enough yet to survive long-term.
The second group here is $10M to $100M in assets. And these are often referred as emerging managers still and there’s a small percentage of “institutional investors” that will look at emerging managers. A very small percentage of institutional consultants, a very small percentage of fund to funds, some family offices and then your sweet spot in this range is really going after wealth management firms, very small family offices, high net worth individuals in a compliance approved way. Again, seed capital providers and really what you’re looking for here is people who want to take the bet on the manager which is not large yet. They don’t have hundreds and millions of dollars in capital but they can see your growth, they can see you’ve reinvested in your business, they see that you’re going in a good direction.
The next level up is when you get to $100M or more. This is when you start to be referred to as institutional quality. Many times up to $100M you’ll be called an emerging manager and many people if you’ll call them, they will almost, just hanging up right in your face if don’t have a $100M in capital or more because you’re not “institutional” enough for them. And this can get very frustrating to say the least for anyone trying to raise capital and many of you probably know exactly what I’m talking about. But when you get to this level, it opens a lot of doors for raising more capital. Do know that some institutional investors will still call you an emerging manager until you get to $250M or even $500M or more. But typically 80% of the market is calling you an institutional manager after you get to a $100M.
Now, when you get to this level you can market yourself to family offices full on to institutional consultants in most cases, to some pensions and foundations and endowments but many will require you to have those higher asset levels. And the top of the pyramid here is when you get to a billion dollars plus. I really have not heard of many allocations if any that require more than a billion dollars in capital. Even insurance plans, pension funds, endowments, foundations, ultra high net worths, the biggest single-family offices in the world — typically if you have a billion dollars that’s a sustainable business plus some.
And it’s really about the institutional quality of your risk management procedures, the consistency of your invest process, the team you have in place. It’s more about everything else going on in your business rather than asset level at that point. Once you get past $500M, $800M, a billion dollars, the AUM issue instead of being the number one roadblock in your hedge business really is just a detail and it’s the other parts of your business that become center stage.
So I hope this short summary of what types of investors exists in the hedge fund marketing, who you can go after, what stages, who hedge fund managers are raising capital firm right now today at these different levels is very helpful and educational for you. Thanks and please join us again soon. It’s Richard Wilson and keep in touch. An important part of raising capital for your hedge fund is recognizing the different types of investors. I hope that this video has given you a clear idea of where your hedge fund generally fits in and what investors you should be targeting. (As always, please note that these investor types are generalizations and only serve as guidelines and do not take any action without speaking with a compliance officer or attorney who is an expert in this area.)
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