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13. Make presentations to investors.
By this point Novoste had developed an investor presentation, and during the summer of 1993 about a dozen investors (including venture-capital firms) came to Atlanta to hear it. (Novoste had sent out more than 200 business plans, and Weldon had figured he'd be lucky if he got a 4% response rate.) A strong business plan put Novoste in a good position, and Weldon successfully persuaded potential investors to visit Novoste, rather than the other way around. That allowed them to walk through the company, to see and touch it.
Weldon knew before the angels and venture capitalists ever arrived at Novoste that "we had no intention of ever taking any money from many of them." The process allowed outsiders "to shoot holes" in the presentation and enabled Novoste to refine it.
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14. Review the offers and negotiate.
Weldon assessed the three offers Novoste received using two considerations: valuation (the worth assigned to the company) and terms (the conditions governing the deal). Of the three offers, Hillman's was in the middle on valuation, establishing a value of about $10 million. The low bidder valued Novoste at $7 million (too low, Weldon deemed), while the high bidder valued the company at roughly $11 million.
On terms, there was little question in Weldon's mind. The venture firm offering the highest valuation also offered the worst terms (such as an ownership stake, board seats, and other means of control that seemed too restrictive). Hillman's terms were reasonable. Notably, they didn't include preferred stock or a board seat. "Many venture capitalists insist on preferred stock," says Weldon. But he feels that having two classes of stock divorces the value of the common stock from that of the preferred, driving a wedge between the investor and the entrepreneur and raising murky issues of control and veto power.
Hillman's lack of insistence on a board seat was also unusual. "Almost all venture deals give the investors seats on the board," says Weldon. Hillman's attitude toward sitting on the board affirmed in Weldon's mind that the firm's investment stance was relatively hands-off. Weldon put Dick Johnston, the Hillman partner who had negotiated the deal, on the board anyway.
Weldon says the Hillman group was the one that best appreciated Novoste's strategy of developing both evolutionary and revolutionary products. (See step 2.) That was summed up by a key question posed by Johnston: "What are you doing to address changes at the FDA?" Weldon had the answer, and, he says, "Hillman understood that this way we could reduce our dependency on FDA timing and generate some sales at the same time."
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15. Close the transaction.
The beauty of the Hillman deal was that it was clean and quick. The deal closed in four weeks. While many venture funds have restrictive bylaws and finite life spans, which often make additional investments in the same company problematic, the Hillman Co. is not so encumbered. It is run by Henry Hillman, a man with $2.4 billion in his pocket, and he's free to put additional funds into Novoste at a moment's notice if he so desires.
THE SILENT PARTNER
Henry Hillman, whose company recently plowed $2 million into Novoste Corp., is not exactly a household name, though one place you'll find him is near the top of the Forbes 400 list of America's wealthiest people. This year the magazine put Hillman's net worth at $2.4 billion.
Hillman, 74, is a Pittsburgh investor with a profile as low as his pockets are deep. His most recent press interview -- reluctantly given at that -- was back in 1984. The one prior to that was in 1969. Hillman sees fame as a distraction that keeps him from doing what he does best -- using money to make more money. Ten years ago the Hillman Co. was considered the largest venture-capital company in the United States, and it's still a major -- and underappreciated -- force in the venture field.
The Hillman fortune dates from the late 19th century, but Henry Hillman, unlike many of inherited wealth, has a knack for staying ahead of the investment curve. When he assumed stewardship of the family fortune upon his father's death, in 1959, it was tied up principally in the family-run Pittsburgh Coke & Chemical Co. Hillman began selling those aging assets and looking to the future. In the early 1970s he went to Silicon Valley and saw the coming revolution in microelectronics. He linked up with one of the valley's preeminent venture-capital firms, Kleiner, Perkins, and subsequently made a number of early-stage investments in high-technology companies. Hillman exited a number of those deals before the high-tech downturn in the mid-1980s and was by then doing leveraged buyouts of more-mature companies. He had started doing LBOs with one of the technique's master practitioners, the investment firm of Kohlberg Kravis Roberts & Co., back in the late '70s, when the process was scarcely known.
In recent years the Hillman Co. has stepped up its investments in health-care companies, perhaps signaling that despite all the confusion over reform, this may be just the place for a canny investor to be.
