Investment Criteria

HCAP Partners invests in the lower middle market, an area of the economy that has been traditionally underserved by institutional capital. These small businesses are the growth engine that drives the economy and helps generate job growth.


What we Look For

 

INVESTMENT STRUCTURES

Our investments are typically structured as mezzanine debt with warrant options for minority equity participations, flexible amortization schedules, and flexible current vs. PIK interest. We consider a company’s individual needs to tailor alternative capital structures, which may include equity in the form of preferred or common stock, success fees, royalties, or a combination thereof. 

Note that HCAP does not finance start-up businesses.

  

FAQs


1. What is mezzanine debt? ▹

Mezzanine debt, sometimes called subordinated debt, is similar to a regular bank loan with equity features to compensate us for taking greater risk. Like a bank loan, our mezzanine debt structures include current interest payable on the amount outstanding. While principal and interest are usually repaid quickly from available cash flow, our mezzanine debt has a more flexible amortization schedule that may include an interest-only period to facilitate growth. The equity features of our mezzanine debt may be structured as success fees, royalties, warrants, or a combination thereof. Warrants entitle us to buy stock at a fixed price at a future date.

2. What if my company needs equity in addition to some debt financing? ▹

HCAP Partners has the flexibility to provide equity as well as mezzanine debt. In cases where equity is required, we work with the company’s owners and management to develop a fair valuation metric agreeable to all parties.

3. What happens if we need more capital in the future? ▹

Many of our portfolio companies encounter changes to their capital needs. Whether additional capital is needed for an acquisition, organic growth or due to an unforeseen obstacle, such as an economic recession or losing a major client, we work closely with management to forecast alternatives, then fund additional tranches of debt or equity accordingly.

4. If you provide equity, can you force a sale of my company? ▹

HCAP Partners typically is a minority shareholder, so cannot force a sale of the company. Before committing equity, we spend considerable time to understand the business owner’s medium and long term goals, enabling us to establish an exit strategy for our investment that aligns with your longer term plans.

5. If we were unable to secure lending through a bank, how can HCAP Partners provide us with a loan? ▹

HCAP Partners lends privately-managed money, so we are not subject to the same regulatory restrictions as banks. We seek fair compensation given the amount of risk involved. HCAP Partners also lends on longer terms than banks and, as a result, we can afford to take a more patient approach. Notwithstanding, we do require our borrowers to meet some financial loan covenants, however ours are not as stringent as those of banks.