Are You Contemplating Becoming an Angel?

(Caveat:  I am not an attorney, accountant, or licensed professional in any regard; before contemplating any financial transaction, you should seek the advice of trusted professionals.  The following is strictly my opinion.)

I saw an interesting deal this week which didn’t make me very happy.  A second stage start-up that I am aware of filed for bankruptcy, of the liquidation ilk.

My guesstimate is there is about 500k in debts from creditors; there are virtually nil assets, except some (possibly) items and fixtures that can be sold at liquidation to satisfy the creditors who may receive percentages of pennies on the dollar.

Here’s the rub.  The entrepreneur has provided a series of promissory notes dating back several years – that he lent money to the company during the start-up phase and is the only “secured” creditor, and thus is entitled to be in charge of the sale of the goods and receive the majority portion of the proceeds.

“Legally”, there is probably some element of truth to this.  Morally, not so much.

Traditionally, while entrepreneur’s “skin in the game” is always the first money in, it’s also (supposed to be) the last money out.

In the train wreck of this business, there will be a lot of very small vendors, employees, and advisors that are going to be hurt hard.

It just doesn’t seem right.

So the point of this post, is if you are contemplating an angel investment into a start-up, spend the money to conduct a thorough due diligence.  Do not invest on a whim, or at the behest of a relative’s or friend’s pleading.  Make a sensible decision based on facts and the information available to you.

If you are offered a convertible note (often the case in start-ups), make sure you are  listed as a secured creditor, with rights second to none.

Ask for an ‘early buy-out’ clause, that is, if major funding comes along, you have the right to exit the deal early.

You’ve heard it a million times – if it sounds too good to be true…

 

 

December 7, 2011 – 16:15 Categories: M&A, Selling, Startups | Post a comment

Start-up Advice You Didn’t Ask For

I hear from a gaggle of start-ups every week, from all over the planet.  Some are seeking money, some advice, some want team members.  Everybody is bootstrapping these days, it not only has to do with the relative difficulty of finding money, but also the current trend of flipping prior to VC involvement.

If one can build a working model on FFF or angel money, and sell out quick, well, that’s a pretty good value proposition for most people.  Most entrepreneurs I know in this position believe if they can achieve this once, surely the model is replicable, and they can do it over and over again.

In a time of bootstrapping, one looks for ways to build a company as inexpensively as possible, whether this means doling out bushels of “founder’s shares”, or offering options in lieu of pay.

I caution you to approach this slippery slope gingerly.

The old axiom still holds true:  “you get what you pay for.”

Two reasons:  you’re not going to (probably) get a very competent team if you hire based on cost, rather than ability, and secondly, oft times these early shareholders are difficult to get rid of.  A major money infuser is going to want a very clean deal, and sometimes that means getting rid of the earliest shareholders.

Conclusion:  have a provision for taking out early shareholders in every agreement (make sure you see legal counsel on this), and don’t expect to attract the best talen out there if you aren’t willing to pay.

(Before you invest or participate in any financial transaction, be sure to seek the advice of legal and financial counsel, to make sure your t’s are crossed, your i’s dotted, and you are in compliance with all federal, state, and local regulations).

 

 

December 2, 2011 – 14:41 Categories: Interim Services, Startups | Post a comment

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Now Available – Leading Industry Reports

We have partnered with one of the world’s top research companies  to offer some of the leading  reports for a wide variety of industry segments.  These range in price from $800 to low five figures.

Here’s a summary of the types of reports available for the food industry.

  • The 2011 Top 10 World’s Leading Food and Beverage Companies
  • North American Food and Beverage Market: Strategic Assessments of Leading Suppliers
  • European Food and Beverage Market: Strategic Assessments of Leading Suppliers
  • Asia Pacific Food and Beverage Market: Strategic Assessments of Leading Suppliers
  • Emerging Food and Drink Ingredients: Growth Opportunities in Flavors and Formulations by Product Category

Dozens more.  Email us in regards to your specific topics of interest.  Thank you.

November 30, 2011 – 18:09 Categories: Interim Services, Uncategorized | Post a comment

“The Biggest Lie for Entrepreneurs…”

A prominent lawyer once told me, “Is the ones they tell themselves everyday.”

I’m pondered this for a few years. I thought I knew what he was referring to at the time, but I have a much clearer idea these days.

I have a clearer idea, because even tho I tell potential new clients “think of me as a business proctologist, I’m going to look really deeply into everything, and you have to be completely honest with me or I can’t help.”

That’s a fact.  If I try and “sell” a project as one thing, and a potential investor’s due diligence uncovers something that wasn’t revealed, or I didn’t discover, both my own, and the company’s credibility is shot – that investor skates and won’t be back.

Entrepreneur’s “lie” to themselves in so many ways:  denying there are similar projects or products on the markets that are much farther along than they are;  understating the finances of the company, past investor’s positions, debt.

Not having a basic understanding of accounting, or some other business procedure, but insisting on doing it all themselves.

This is why “we” always need to surround ourselves with people much smarter than ourselves.  From the get go.  You don’t hire lawyers and accountants because they are cheap.  You bite the bullet and get the best.

You don’t try and pitch a business plan that you wrote with help from some off-the-shelf software, or hired somebody off Craig’s list to tell your story.

YOU need to be able to tell YOUR own story, and explain every single aspect and nuance of the deal, the market, potential, customers, and so on.  I’m not discounting that there are talented biz plan writers out there, I’ve crafted a few for other people myself.   But I understand now the disadvantages of an entrepreneur not KNOWING his / her own plan.  That’s a fatal error.

No investor expects you to be expert at all things related to your business.  But they do demand you be smart enough to understand what you don’t understand!

 

 

November 2, 2011 – 18:57 Categories: Interim Services, M&A | Post a comment

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Where to Find Money in Tough Times

Your chances of getting a multi-million $ check from a big VC are kind of the same as winning the lottery – tho you would fare better with the lottery than giving away the store to an outside investor.

If you’re ready for round 2, and have exhausted the F,F, & F group, there’s still money around for ventures that make sense.

Before you go looking tho, KNOW YOUR COMPETION AND THE MARKETPLACE.

I’ve seen so many plans where the enterpreneur was so inwardly focused on their own project, they didn’t realize they were a couple years behind the curve – there are competitors out there, farther along, with more bells and whistles.

In the first dot com boom, I saw lots of plans where the team had built “half a company.”  Great product, or service, but no plan or idea how to monetize it.  That’s a relatively important part of the equation.

So where to look?  Strategic partners.  Find your potential biggest customers (if you’re in the B2B arena) and offer them a small piece in return for an investment.  Better yet, let them basically pre-pay for product or services you will deliver in the future, and not have to give up any equity.

Another source is suppliers/vendors.  People you will be buying from on a regular basis.   They are advancing funds to you (in either debt or equity) in return for your commitment of future business.

Finally, remember this about your business plan.  It’s not a roadmap of how to operate, but rather a marketing document used to raise money.  And don’t hire a outside firm to write the plan, unless it’s a completely collaborative effort.  If you can’t explain it, you can’t sell it.

 

October 24, 2011 – 17:16 Categories: Interim Services, M&A | Post a comment

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The Case for Micro-enterprise Development

I believe, as many do, that the future of the economy of the US depends on small business, and the success of start-ups.  The Georgia Micro-enterprise Network has provided a number of excellent support docs and case studies that are worth reviewing.

Find them here.  Worth your time.

September 8, 2011 – 19:45 Categories: Interim Services, Uncategorized | Post a comment

Tenets for A Good Operation

I always liked these, they have been modified and added to over the years.  If you adopt many of these for your company, you’ll see positive feedback nearly immediately.

We are in the business of helping our customers grow their businesses.

We believe in maximizing our customer’s satisfaction, we will deserve and will earn their continued loyalty. Our goal is to have long term, mutually profitable relationships.

We believe in providing superior value to customers through high quality, technologically advanced, fairly priced products and services designed to meet customer needs better than all the possible alternatives.

We believe our people are our most important asset. Our teams make the critical difference in how we perform and their skills, talents and determination separate us from our competitors. We also believe people can achieve their full potential when they enjoy their work, so it is a priority to provide a workplace where growth, success and fun go hand-in-hand.

We believe we have anobligation for the well-being of the communities in which we live. We further believe the future success of our communities and the industries where we do business is dependent upon the responsibility we feel, the high standards we set and the positive impact our actions have.

We believe excellence is the standard and we seek to achieve excellence by encouraging and nourishing these core values:

  • Respect for the individual.
  • Honest, open communication.
  • Individual development and satisfaction.
  • A sense of ownership in our success.
  • Participation, cooperation and teamwork.
  • Creativity, innovation and initiative.
  • Prudent risk-taking.
  • Recognition and rewards for achievement.

We believe success is measured by:

  • Achieving leadership in the markets we serve.
  • Developing our own people to form the building blocks of our internal growth and expansion.
  • Maintaining the highest standards of ethics and integrity in every action we take and in everything we do.

We believe the ultimate measure of our success is to provide a superior value to our investors, customers, community, and employees.

 

 

September 7, 2011 – 19:05 Categories: Interim Services | Post a comment

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Don’t Sign Til It’s Time!

One of the biggest decisions entrepreneurs face – and therefore one of the most critical, is opting to accept money from an angel, VC, private equity group, or incubator.

The temptation to take the first deal is enormous – you’ve struggled, maybe for years, and finally it looks like someone believes in you and you will be “in the money.”

Don’t sign.  Pause. Breathe.  Counter-offer.

While the investor has the best interests of the company at stake, this certainly isn’t synonymous with YOUR best interests.

I can’t tell you how many times I have seen an entrepreneur lose control of his own deal.

If you’ve been offered “benevolence” from an investor, or an incubator, let me take a look at the deal for you, offer you some thoughts.   There is no fee for this.  It’s kind of a “pay it forward” type of deal, or perhaps a payback for all the folks that have been mentors for me along the path.

 

August 23, 2011 – 14:07 Categories: Interim Services, M&A, Uncategorized | Post a comment

Choosing the Right Law Firm

One of the most important decisions you will make as a business owner is choosing the right law firm.

There are as many types of lawyers as there are in any other profession; as well as types (specialties), of course the quality range varies widely as well.

I’ve come across a lot of lawyers in my career who I am convinced must have cheated on the bar (if that’s possible) – they are ignorant of business, the law, and lack common sense in general.

You must first decide what size firm you want to deal with – small, medium, or large.  They all have their benefits and drawbacks.

Next question is “specialist” or “generalist”, and that depends entirely on your primary need for hiring an attorney in the first place.    For a start-up company, a generalist will fit most of your requirements, and sub-out special portions of your work, should they not be an expert in the category (as an example, the business
segment of “intellectual property” is a very specific practice).

A larger firm hopefully has a depth of field of attorneys in most skill sets – enough that they can handle all of your work in-house.

Interview several attorneys (at least) at the prospective firm.  Have them make an actual presentation to you.  Ask for references, current and past clients.  Especially the latter.  And ask for permission to speak to their accountant about their financial health.  I’ve seen a number of law firms lately who are on the precipice of financial disaster, sometimes because, tho while they are adequate lawyers, they know nothing about running a business, and are too vain to seek out expertise in this area.

It’s an irony not unlike the general practitioner not seeing an oncologist when he needs to.

The most important thing to remember about an attorney:  they work for you.   They are just one more tool you use for running your business.  You hire them for
legal advice, not business advice.  Many of them know far less about business than you do.  They aren’t dealmakers, financial experts, or HR people, for the most part.

One hires a lawyer to memorialize in writing (legalese), documents and deals you make in or out of your company.   Nothing more.   Food for thought.

July 22, 2011 – 12:23 Categories: Uncategorized | Post a comment

Spring Has Sprung, the Economy in Rebound

I’ve been very skeptical of pressers talking about the economic recovery;  at least in my own backyard, things look pretty bleak, unemployment continues to climb, housing values continue to decline, companies continue to shutter their doors.

But I have just returned from one of my quarterly two week drives around the country, this trip covering California, Arizona, New Mexico, Texas, Louisiana, Tennessee, Oklahoma, Kansas, Colorado, Wyoming, Utah, Nevada, and I must say, I see signs of life beyond blooming tulips.

My last trip, in Nov/Dec, was very depressing to me, while cruising through small towns, and seeing the number of closed car dealers, movie theaters, chain restaurants, and even motels along the interstates.

While this trip included noting some of those same situations, there seems to be a slight uptick, but one of the most encouraging signs I saw was the number of semis and flatbeds long haul truckers on the roads, carrying luxury goods:  swimming pools, boats, cars.    Some industries obviously are seeing signs, and are encouraged to ramp up production and distribution.

If you listen to right wing media, one would continue to think that economic Armageddon is at hand.   That’s their job, I guess, to politicize current events to their own advantage.  Whatever.  Yawn.

To me, a pile of fiberglass swimming pools on the back of a truck rolling westward from factories in the SE, is far more demonstrable evidence of a change.   Someone had to go back to work, to make those pools, outfit those boats, manufacture cars in Mississippi and Alabama.

Even New Orleans, nearly five years after Katrina, seemed to be a hub of activity.

I know I’ll do my part for the economic stimulus.  I will continue to spend money as fast as I make it.  It’s my patriotic duty.

May 7, 2010 – 06:04 Categories: M&A | Post a comment

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