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Tough financial climates force resourceful entrepreneurs and financiers to be more innovative to get their deals off the ground.

Take mezzanine finance. It is traditionally used for mid-market or mega-deals – Candover's recent offer for oil group Expro, for instance, includes a $16 billion (£8 billion) debt package, of which a third is mezzanine debt. But, I have been struck by the number of experts who have flagged-up to me how frequently mezzanine finance is beginning to show up in leveraged buy-outs in the lower mid-market.

Octopus Intermediate Capital, for instance, raised £45 million last year, specifically to back management teams, provide growth capital and fund exits in the lower mid-market. To date the fund has completed four mezzanine deals with an average investment of £2 million.

Octopus kicked off in November with a £2.8 million investment in Midlands-based Funeral Services Partnership (FSP) together with Aberdeen Asset Managers Growth Capital, which invested £1 million. The cash injection will fund the acquisition of five funeral businesses in the south of England.

And in the scramble for funding, AIM companies too, are being much more innovative in the ways in which they raise cash. AIM companies have raised just over £1.1 billion in the first quarter of 2008 – a considerable reduction on previous years. However, this statistic doesn’t include the many ventures that have raised significant funds pre-IPO (on favourable terms for select investors) on the understanding that a public market listing will follow in due course. Stellar Diamonds raised £2.4 million in a pre-IPO placement in the run up to its proposed listing, which is as yet unscheduled and “subject to market conditions”.

Moreover, its not just funding structures that are becoming more unique, investing institutions are as well. For instance, many companies are turning to alternative investment funds, such as Trafalgar Capital Specialized Investment Fund. These funds provide entrepreneurs with the right to raise finance in tranches at different prices as their needs – and deals – dictate (for more information, turn to page 13 of our Q1 AIM Review 2008).

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