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MONEY

Getting Sponsors Who Prepay

Publication raised start-up capital by lining up sponsors who paid in advance for advertising and marketing services.
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Back in 1989, when Tony Perkins was looking for seed capital for his first magazine (a national technology-business publication called Upside), he pitched it as an investment opportunity for wealthy individuals looking for capital gains. The investors came flocking, supplying $3 million in equity.

But for his second venture, a more narrowly focused financial publication called The Red Herring (the Redwood City, Calif., journal made its debut last April), the former technology banker avoided the equity route. Instead, he chose to line up sponsors, most of whom have pledged to pay $2,500 a month each for advertising and other marketing services.

Why the shift? This time Perkins, 34, wanted the employee owners (himself and three others) to keep the stock. In part, the motive was financial -- the opportunity to own more of the pie. But beyond that, Perkins notes, "when you raise substantial outside money, you're working for a board of directors."

In designing his battle plan for The Red Herring, Perkins put together a $50,000-a-month cost model that took into account everything from salaries to postage costs. Then he approached investment banks, accounting firms, and others to ask them to become sponsors. So far, 32 have signed on, making the publication profitable from the start.

Perkins concedes he won't be able to make big investments in marketing or equipment without an equity cushion. "There's no question," he says, "that this approach requires us to be more humble." But the advantages, he believes, will more than make up for the limitations.




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