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
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.
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.
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.