“Step 1: We find the worst play ever written. Step 2: I raise a million bucks. Lots of little old ladies out there. Step 3: You go back to work on the books; one for the government and one for us. Step 4: We open on Broadway and before you can say Step Five… Step 5: We close on Broadway, take our million, and fly to Rio.”
Paraphrase of dialogue from The Producers by Mel Brooks
Okay, so you don’t exactly subscribe to Max Bialystock’s approach to raising funds. Most of you do not start out counting on failure to succeed. But, based upon some of the approaches I have seen, it may be helpful to compare and contrast what you are proposing versus what Max is doing; perhaps there is a hidden lesson there.
Everyone looking for financing wants the five steps to follow to achieve success. I wish I had them, but this is one of the hardest things to do in business and, in 40 years, I have not found the secret formula. However, I can offer five points to consider but they will all take some time and hard work. (If it was easy, the success rate would be so much higher.)
- Prepare a pitch deck that is based on a true business model. If you need help, you can refer to our website. The good news is it will tell you exactly what should be in the deck; the bad news is you need to provide the content.
- Invest some of your money. Investors are not interested in helping someone with no “skin in the game.” They want to know that you are serious and have something to lose if you do not succeed. Fear is a great motivator.
- Get friends and family to invest. If the people who know you can’t be convinced, how are you supposed to win over strangers? They don’t need to mortgage their homes; they just need to demonstrate commitment.
- Communicate and refine your plan. Talk to advisors, friends and your network. See what they like and don’t like about your plan. And don’t force the issue; don’t let them feel bad if they are not thrilled and would like to tell you so. Make the feedback process easy and use what they say to consider modifications.
- Target your investors. Understand what they want and how you match up. If you are pre revenue and looking for seed money, friends and family and angels are the place to go, not venture capital funds. Use your network to get to the right people. A few good targeted meetings are much better than dozens of ones that end “don’t call us; we’ll call you.”
So, nothing magical here and no guarantees. But, like everything else that is worth pursuing, it is a process. Don’t let it control you.
“I will take what is behind door #2, Monty. (from the original Let’s Make a Deal Show with Monty Hall)
Author’s note – I am really dating myself with this quote.
A colleague and I recently had the opportunity to present a session on what we were seeing as trends in transactions in our marketplace. We chose to use our own universe of deals – situations where we were engaged to provide some due diligence services. We combined this with some general market information as well as some other client experience. Our conclusions were pretty obvious – it is a great time to consider a transaction (purchase or sale.)
So, let me share just some notes and observations from our session:
- There is a lot of “dry powder” out there – estimates are financial sponsors (like Private Equity Groups) are sitting on $1trillion; there is another $1trillion sitting on Corporate balance sheets (excluding financial institutions.) To put this in perspective, these two amounts added together are equivalent to the 6th largest GDP in the world (just behind Brazil.)
- Financing is available – rates are historically low and terms are very reasonable. Consider the leverage on this “dry powder” and you have the makings of very favorable financing climate.
- Patience hell; let’s kill something – corporations large and small are growing impatient with the “new normal.” The reason for this year’s 1 or 2% growth can be the result of which days the Holidays fall on versus last year. In that environment, it is difficult to consider yourself managing for success. It is not hard to surmise you need more sustainable growth to survive.
- Synergy is “in” – the grueling economy over the last few years has trained owners and their management teams how to get along with less. Adding some new “bolt on” or “tuck in” acquisition does not seem as challenging as it once was.
- “Strategics” have the edge – of the companies who engaged us, 80% were strategic buyers. That synergy combined with a deeper knowledge of the market returned this group to the more historical relationship with strategics doing more deals than financial buyers.
- Financial sponsors may be headed to “time out” soon – the pricing is getting a bit “frothy” and making the economics work on the “buy side” to satisfy their limited investors is proving to be a bit of a challenge. That being said, it appears there is still broad interest for good deals. Obviously, for those on the “sell side,” this is nice to see
- Why did deals work?
- Realistic price expectations
- Strategic fit
- Management teams
- Why did deals fail?
- Seller remorse
- Chasing revenue only – no conviction
- Unexpected surprises
So, given the above, it is a great time to consider a transaction. Just keep in mind that while the overall atmosphere for a deal may be more “enabling,” each deal has to stand on its own merits and deal frenzy should not replace sound analysis as a reason to buy or sell. Good luck!