Participation: Surrendering rights for liquidity

You can raise liquidity by means of a third-party investment in the rights to your company. This is formally an increase in equity from outside. When you bring equity capital into your company, you also share the corporate risk with the capital providers; however, you also share the earnings in proportion to the capital shares.

The capital share is measured on the basis of the pro rata company value. You should therefore bear in mind that the company value is the decisive factor in determining how much of your company’s rights you have to cede in return for the required capital. Especially in crisis situations, the company value is not high. The “price” for equity capital is inversely proportional to the value of the company. In crisis situations, therefore, you have to cede a relatively large share of the company’s stock. In return, however, in the best case you receive a financially strong shareholder who can help to turn the company around with their equity capital and perhaps also with their know-how and relationships. The sustainably restructured company will once again have value. Your share in the company will be correspondingly valuable. You might not have achieved this without providing the equity investment.

There is the possibility of approaching Private Equity Firms to arrange a purely financial participation or to seek a strategic participation in the company.

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