Thursday, May 12, 2011

How To Raise Capital

Not everyone is familiar with how to raise capital. There is an art as well as a science. Most entrepreneurs travel blindly down the Obstacle Course seeking capital from mostly inappropriate sources and thus wasting time. You hire a lawyer to handle matters you know little or nothing about. Your accountant is your wing man at tax time or when you need to prepare financial statements. You hire expert sales professionals when you need to move your product or service. You in essence build a team. The same goes for raising capital. You must hire the experts that know and can teach you how to play in this arena.
Do Your Due Diligence

Most recently I reviewed a website that cautioned the reader about the multitude of scammers and scoundrels called “Money Finders”. Indeed there are more good guys than bad in the industry. I have had my share of dealing with the bad guys time and again. I still can be fooled by the guy with the good story and persuasive manner. But for the most part I can spot the bad guys sooner than later. It is important to look at all aspects of the history of the person you are considering hiring to assist you. Not everyone is who they represent who they are. There are however some very good professionals in the game. You just have to do your due diligence.
Recently I had a fellow contact me saying all he needed was a loan and he would supply the collateral and he had plenty of it for other uses if needed. Well the US Treasury Bonds he was using as collateral were bogus. I found the fellow to be full of BS. The government was even on his tail as well as a host of others so take a look at this . Pay special attention to the “SR letter 02-13” link in the article. It is full of information about other scams out there.
You Need Experts

But back to the point; you need experts and a team to form capital. Your job is to run the business of the business. By spending an inordinate amount of time trying to find the right sources, pitching your request and scanning the horizon for anyone who will listen to you, your business will suffer. You need to deal with the good guys. You need team members that can assist you in attempting to accomplish your goals.
Try, Try and Try Again

And another important point. You may not be successful in raising the capital you seek. Not every capital formation project is successful. You may have a poorly structured transaction. Your timing in the market place may be ill timed. Your business may not have the capacity to borrow or the valuation of the company may be too far reaching. Albeit the team members may be able to assist you in avoiding some of these speed bumps but not every request gets filled just because you gave it your all. Sometimes it is just not meant to be. Rare but it does happen. Remember to try, try and try again. As you will see in my first book it took five tries to get to the finish line.
Find The Good Guys and Add Them to Your Team

About that website I mentioned earlier? Well I found the site to be well done. The site owner talked about how you never should pay “up-front fees” and that anyone who asked for them was a scammer. But he too had a product to sell and it was a two hour call. Unique and I would assume useful as long as the advice you received during the $149 call to be useful. At least what he was selling was advice over a very short call and not a business plan or a software package. His point is that he was giving advice and that is what I am saying in this blog. You need advisors, and good advice costs money. Sometimes you need access to contacts you do not possess. That too costs time and money. The fact is building a team takes time and money. No professional worth his salt works for free. Remember the lawyer you paid the retainer to? The same goes for the corporate finance professional that knows his way around and how to navigate the Obstacle Course. Find the good guys and add them to your team. When you are raising capital it is “People before projects!” as I say.

Tuesday, May 3, 2011

The Microwave Society

Everything in Three Minutes or Less

I listen to and review anywhere from forty to seventy potential transactions a week. BHCL cannot help everyone. But you have to spend the time to listen to see who in fact you can help. Recently I listened to possibly my fifty thousandth pitch from a prospect. After twenty nine years of structured finance, yes, that number is pretty close. I often hear the same request surrounded by the same unworkable structure but this particular request illustrated the mass expectation of business professionals and entrepreneurs around the country.
Everyone wants everything in three minutes or less. They want meals in three minutes or less. They want credit card approval in three minutes or less. They want to be able to download Gone With The Wind to their home computers in three minutes or less. This is the state of our Microwave Society. Everything …Now!
The Golden Question

This particular prospect was requesting a loan for his business in the neighborhood of $5,000,000. The manner in which he wanted to structure the loan was unworkable. I then suggested we go another route. He said he would consider it. We talked about the alternative among other elements of the his business. It was clear there were possible underpinning’s of penitential in the proposed transaction. I listened some more. The conversation went on and then it happened. The golden question; “How long will this all take?” My response was that there is a procedure and with all factors considered, inclusive of numerous financial statement corrections, modifications and elevation in the type of accounting opinion, plus appraisals, valuations as well as a mountain of documentation required it would take up to six months. His response was simple; “I can get an approval from my bank for this in a week and close in two.” I suggested he do so and then the conversation ended cordially and I was back to doing what I do best.
I knew he was full of BS. I knew his banks could not provide an approval of any type. The transaction needed a ton of scrubbing before it would be ready to present. His posture was poorly positioned. After twenty nine years in this business and knowing the scores of banks and bankers I do, as well as being familiar with their procedures, this was nothing more than prospect smoke.
It Just Does Not Work That Way

Soon he called back. I listened again. He reiterated that his bank could close the loan in record time. I asked why he called me back? His response bounced around and avoided a direct answer. I pushed the question again. He finally admitted his bank turned him down months ago but he did not want me to think that he had no other options. He wanted to deal with me from a position of strength. I told him he could but he needed a better position than his bank could do it two weeks. That was not realistic.
The conversation went on then timing came up again. I reiterated my original estimate. He responded; “For five million dollars you should be able to do it in three or four weeks! I can do a home mortgage in a week. Why does this have to take so long?” Once again I explained how complicated his request was and all that would be needed to complete the financing he was requesting. Again he pushed for a three week time frame. I cordially ended the call and suggested he continue to seek a solution elsewhere. I was just wasting my time.
This prospect’s perception was that he was requesting credit for a credit card and nothing more. His view, and more to the point was acquisition of any and all credit should be able to be accomplished in days rather than months. He did not understand he was nowhere near ready for presentation to the financial community. He just did not get it. Just like he downloaded Gone With The Wind in less than three minutes he was looking for the same service for a five million dollar loan. It just does not work that way.
Listen to the Experts and Follow Instructions

Complicated transactions take time to construct. A home mortgage in today’s market is a demanding task. There are a lot of moving parts to the application process. Now you take a very complicated commercial loan request, add in some accounting treatments that are inappropriate, two inch thick corporate tax returns and misstated values and you have a formula to eat at the clock. I can only suggest after reading this blog that you incorporate this thinking into your next request for a commercial loan. You need to be organized and patient. You also need to take the prescription that the doctor writes. That prescription reads…Listen to the experts and follow instructions.