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7. Create professional advisory relationships.
Novoste retained patent counsel, legal counsel, and a Big Six accounting firm, and established a contractual relationship with the Wilkerson Group, a leading consulting firm in the industry. All that further enhanced Novoste's credibility. Weldon says hiring a Big Six accounting firm is wise because potential investors "are more comfortable with the idea that you're using someone who is internationally recognized. There's no question in their minds that things will be done properly, that you are willing to pay for the best." Weldon says that hiring a Big Six firm is scarcely more expensive than hiring a no-name firm "if you negotiate hard." He signed a five-year contract with Ernst & Young. He says that for the first two years his fees are "astonishingly cheap -- less than $5,000," although they rise after that on the assumption that by then Novoste will be better able to afford its accountant. While it is illegal to compensate accountants with stock, Weldon says that whenever possible he has taken that route with other advisers to conserve cash and align interests.
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8. Do some public relations.
Weldon made an effort to get publicity for Novoste. "Any company can get publicity in a trade journal or in the local media," he says. "That's different from being featured in BusinessWeek." Nonetheless, Weldon says that while he was at his former company he received mention in a number of trade journals that helped him find both investors and customers.
He sees the publicity process, like the search for investors, as a multistage one. The first stage is akin to playing out of town before bringing the show to Broadway. It's a first step toward gaining wider coverage in and credibility with the national press.
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9. Develop a business plan.
Weldon says most start-ups write a business plan way too soon, producing little substance and dubious projections. It's important to have the company running with the top people in place first. While venture capitalists may read just 2% of all business plans they see, they always note who is running the company. "There has to be something that jumps off the page at them," says Weldon. Pie-in-the-sky numbers "won't do it for you. You need an established history with highly qualified people." Before releasing his business plan Weldon had it reviewed by his consultant, professionally edited, and reviewed further by industry peers. That ensured conservative projections.
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10. Hire intermediaries to identify potential investors.
This was a fallback plan. Because of the increasingly uncertain climate surrounding health-care companies, Weldon found that by mid-1993, when Novoste was ready to go out for more money, many wealthy individuals -- his preferred funding source -- had been scared out of health-care investments. He had no choice but to approach more professional investors who specialized in health care and thus knew the risks. But making contact with those investors was difficult.
Weldon balked at hiring a middleman because it meant paying a retainer with no guarantee. But Novoste was burning about $50,000 a month in operating expenses. If he didn't hire someone, Weldon reasoned, Novoste "could be sitting here two months from now with nothing to show for it." Weldon thus looked upon the retainer as an investment.
Weldon hired two intermediaries, hoping to circumvent a problem entrepreneurs face. The venture-capital world is a small one; people know of and participate in one another's deals. Entrepreneurs don't like that because it keeps venture capitalists from bidding against one another in deals. "A true free market almost never occurs," says Weldon. He hoped to isolate members of the venture community from one another by having his two go-betweens operating on opposite coasts and by asking that they not disclose the names of firms that had expressed interest in Novoste.
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11. Find a corporate partner.
This was a fallback plan to the fallback plan in step 10. Weldon began talking to a number of large health-care companies as possible investors. Since Novoste's distribution strategy would be based on strategic alliances formed with those companies, they were a logical universe of partners that perhaps could take minority stakes.
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12. Hire a public-relations firm.
Note that this step differs from step 8, which was a general effort to get local and trade-press coverage. This step is more focused on starting to build some credibility and name recognition. Weldon retained a New York City -- based firm, Desmond Towey & Associates, specialists in serving early-stage companies, with a good record of getting clients national press.
The firm understood how an early-stage investment could pay off down the road and was comfortable taking stock as payment for its services. Since measuring the payoff from public relations is so problematic, Weldon believes in paying for PR in equity only. "If you can't get this done for noncash payment, then you should simply run your own PR campaign," he says.
