Contrarian thinking -- and a little shrewd planning -- helped these 2002 Inc 500 CEOs raise funds.
If you're looking to finance growth or raise start-up capital, you can take a traditional approach and turn to commercial lenders, venture capitalists, angel investors, your own savings, your own credit cards, and, of course, loans from the National Bank of Family & Friends.
Or you can take a more unorthodox approach that ultimately proves just as successful. You might, for instance, borrow to bankroll a carefully timed bid for a troubled rival. Or you might go public at the worst of times and still come out ahead. Or you might turn a little publicity into a decent chunk of money.
Using those methods, these three members of the Inc 500 Class of 2002 raised, between them, more than $50 million. Here's how they did it.
Using Their Heads
Who: Bob Dennis, CEO, and Glenn Campbell, cofounder of Hat World Inc. (#50), retailer of athletic hats and caps How much: $16.5 million Why: To fund acquisition of company's biggest rival Sources: Saunders Karp & Megrue Growth Investors, Dallas; Bluestem Capital Co., Sioux Falls, S.D.; LaSalle Bank, Chicago; individual investor Clyde Anderson, CEO of Books-A-Million How: In 2000, Lids Inc., then the nation's largest headwear retailer, approached a smaller, younger competitor, Hat World Inc., to talk about joining forces. Lids, founded in 1991 in Westwood, Mass., had expanded rapidly, opening 383 stores primarily on the East and West coasts. Hat World, founded in 1995 in Indianapolis, had evolved more slowly, concentrating its 157 stores mostly in the Midwest.For the Lids team, it was a wasted trip. Concerned that Lids' shaky finances couldn't sustain its explosive growth, the Hat World team declined to merge. Then they waited. Recalls Hat World cofounder Glenn Campbell, "We said, 'We'll pick up the pieces" when Lids' luck runs out.
It didn't take long. In March 2001, Lids filed for Chapter 11 bankruptcy protection, and Hat World executives set their caps on acquiring their fallen rival. They quickly convinced their own bank and past investors to put up the $16.5 million they needed to buy Lids, whose huge inventory provided sufficient collateral. Hat World -- which closed the least profitable Lids outlets and revamped the rest -- now operates 428 stores in 44 states.
Swallowing the biggest fish in the pond paid off: Hat World's revenues soared to nearly $118 million in 2001, up from just $41 million the previous year -- and a 3,000% increase over the $3.7 million the company made in 1997. -- Cara Cannella
Never Say Never
Who: Marc Olin, CEO of Printcafe Software Inc. (#243), a specialty software developer How much: $37.5 million Why: To restructure debt Source: IPO How: Printcafe Software Inc., a Pittsburgh company that provides software for 8,000 printing-industry customers, grew more than 900% between 1997 and 2002, from $4 million in revenues to nearly $42 million. But during that same period, Printcafe ran up $40 million in acquisition-related debt. So Printcafe executives decided to pay down debt by going public. Printcafe filed for an IPO in March 2000, but was forced to withdraw the filing after the Nasdaq collapse a few weeks later. (? Perfect timing,? CEO Marc Olin sighs.)
The company tried again and finally went public in June 2001 -- hardly ideal timing with the economy beginning to sour, but Olin says, "we reduced our debt by half and our interest rates by 10%." -- Mike Leonard
Who: Mark Mathis, Bryan Earnest, and Dee Vandeventer, owners of Mathis, Earnest & Vandeventer (#377), a marketing, advertising, and fund-raising agency How much: $105,000 Why: A start-up loan for office equipment and initial salaries Source: Union Planters Bank, Waterloo, Iowa How: If there's one lesson that three Iowa entrepreneurs learned in launching their business, it's that a little ink goes a long way. Mark Mathis, Bryan Earnest, and Dee Vandeventer worked together in sales and marketing jobs at KWWL, a broadcast TV station in Cedar Falls, Iowa. In 1996 , they quit to start their own agency. A short report on their plan in the tiny local paper caught the eye of John Rathjen, then an executive vice president at the Union Planters Bank in nearby Waterloo. He approached them and offered financing to start what he saw as a promising venture. "They came to the table with very good reputations and a great business plan," says Rathjen, now the bank's regional president.
His hunch paid off. Mathis, Earnest & Vandeventer has grown more than 600% since 1997, with $5.3 million in revenues last year -- not a bad return on a bit of initial publicity that didn? t cost a dime. -- Janina van Loenen