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The criticality of an anchor investor

People frequently ask us how to get a project funded through securitization. Essentially, there is a common method employed by the most successful product launch, and most of the time it starts with an anchor investor. As opposed to selling a pre-defined product, such an anchor investor first sets the terms with our client and defines the product specifics. Our client likely has a limit on the payout to investors but ultimately wants to satisfy the investor to get the investment needed to fund the underlying project, which then offers a much higher return. Let us understand the rationale behind this statement.

A customer who sets the product terms arbitrarily runs the risk of setting terms that are far below market expectations. Customers who insist on subjective product terms may end up with an unsubscribed and empty product. To avoid such an unpleasant outcome, most clients identify one or more potential anchor investors and approach them—starting with the most promising investor. They try to engage them in the product specification process to secure their commitment in the form of a Letter of Intent (LOI).

The ideal anchor investor's minimum commitment covers the ongoing costs of such a financial product. Sometimes the committed investment size only helps our client calculate the maximum costs on the borrower side. An anchor investor is more likely to participate if he can influence the product type, terms, and jurisdiction. Eventually, he must consider other factors such as the taxation of his return. Once your anchor client has committed to your product, you have a basis for pitching other potential investors who will follow those terms and conditions. This is a common way to consolidate most interests into a single format. Investors can still request a separate financial instrument or peer-to-peer agreement if their investment size exceeds a certain threshold.

Sometimes, our clients also engage distributors or so-called capital raisers. It is important to note that they require very specific product terms to identify potential investors within their network. Contrary to what you might expect, they maintain databases of investors with predefined investment criteria. They usually look for matching investors to the specified product terms (currency, industry, payout, interest rate, maturity, collateral, senior or mezzanine, etc.). Therefore, you can include them after you have set the terms with your anchor investor and should not approach the capital raisers without having set the product specifics.

Our role within this framework is in the initial phase, as we can show you the different structures and options to match with your anchor investor. Once you have received their commitment(s), we will guide you through the next steps until implementation with our cooperation partners.

Please contact us if you would like to discuss your project with us. We would be delighted to support you on your journey!

Important: This procedure is a common practice of our clients; however, it does not represent a recommendation of Gessler Capital GmbH.


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