Cornell Capital: an alternative to Pipes
Mark Angelo was working as co-head of corporate finance for boutique investment bank May Davis Group when he recognized a potential market niche. As the small and mid-size investment banks experienced a wave of consolidation or were snapped up by larger players, equity financing for companies with a market capitalization of less than $250 million was drying up. Investors also faced a problem. By 2000 the small cap market was suffering from a severe liquidity drain.
Angelo’s solution to protect the downside of liquidity providers, and enable companies to acquire capital cheaply was the Seda – a standby equity distribution agreement. Since establishing Cornell Capital Partners in 2000, the company has committed in excess of $1.5 billion in capital to more than 250 companies, with a compounded annual return to investors of 30.1%.
The financing structure is indeed unique. Cornell typically agrees to buy up to $20 million of a small-cap company’s shares over a two-year period in maximum chunks of $1 million. As Cornell is legally bound to buy the shares, the company management does not have to waste time and money on roadshows and investor presentations. For example, Company A advises Cornell that it is ready to issue 1 million shares at a dollar a share into the secondary market.