A story that follows one small business's attempt at securing capital from the private-placement investors.
One company's odyssey inside the most secretive capital market there is
This is the story of CEO Gary Russell's arduous search for capital in the hidden realm of private-placement financing. It is also the story of the investors, bankers, and other players--normally so secretive--who for this article agreed to reveal their roles in getting Russell his deal. Most of all, perhaps, it's the story of a teacher-turned-entrepreneur who was forced to learn about a whole new world--complete with its own vocabulary, instructors, and complex set of rules--in order to raise the money he needed to help his company grow.
Some entrepreneurs spend their entire careers scheming for ways to raise enough growth capital to keep their companies on the fast track. Not Gary Russell, the 52-year-old founder and chief executive of North American Sports Camps (NASC). A teacher by training, Russell became an entrepreneur almost by accident when a tiny soccer camp he had started during his summer vacation in Pittsburgh, back in 1969, became increasingly popular with parents who liked his approach to motivating youngsters. Over a period of more than two decades, the business grew into a national company based in Norwich, Conn. Last year NASC earned revenues of nearly $3.5 million, from about 600 camps and 40,000 campers in 34 states. During all those years, Russell remained totally committed to his company's mission statement--"lifting people beyond their vision of capability"--and believed that he had achieved more as a businessperson than he had ever expected.
But two years ago an accidental reunion with a former camper gave Russell a new vision and galvanized him into launching a high-speed growth campaign, the kind that requires large infusions of capital to turn that vision into reality.
The Wide World of Private Placements
Many entrepreneurs focus their capital-raising efforts (and fantasies) on the prospect of either going public or attracting venture capitalists. But for the majority of companies, those aren't realistic options. The companies aren't in sexy-enough industries, or they're too new or too small. And the initial-public-offering and venture-capital markets are volatile at best, which is bad news for all but the strongest entrepreneurial ventures. The good news is found in the universe of private-placement financings. It is vast, well-heeled, and much more accessible to small growth companies than most other financing options.
Last year alone, more than $134 billion worth of private placements were completed, according to Securities Data Co., a research company in Newark, N.J. It's a massive market that many entrepreneurs either don't know about or don't know how to tap into effectively. And investors find only out about companies that manage to surmount both those hurdles.
Despite whatever market inefficiencies may exist, private placements can offer tremendous advantages to companies like North American Sports Camps. For one thing, their base of potential investors is huge, encompassing everything from large insurance companies to banks, pension funds, private investment pools, and even angel investors. That makes private placements a more consistent financing option than those that depend on the strength of a bull market. They are also typically much more flexible in their deal design and requirements than other types of investor or bank financing. That paves the way for riskier deals--or smaller ones, like NASC's--since investors can put together whatever combination of debt, equity, and terms they want to calm their anxieties.
Getting Started
Gary Russell had never heard of private placements back in the spring of 1994, when a former camper, Paul Garofolo, boarded a Continental Airlines flight from Los Angeles to Cleveland and changed the course of NASC's history. Garofolo, now 38, read an article about the camp in the airline's magazine and decided to get back in touch with Russell, whom he hadn't seen in more than 20 years. After exchanging notes, the pair met a couple of months later in the lobby of a Sheraton Airport Hotel in Cleveland.
If Garofolo had been just another nostalgic ex-jock, the reunion might have ended with a cup of coffee. But he turned out to be a prominent sports-marketing figure with ties to big-name athletes in soccer, basketball, golf, and other sports. The owner of Signature Sports and Marketing in Cleveland, Garofolo had amassed an all-star rÉsumÉ, including stints with Major League Soccer, the World Cup organization, and Michael Jordan's agent.
"I looked at Gary across the table," Garofolo recalls, "and asked him, 'Why aren't you taking what you know about soccer and applying it to other sports?' "
Russell's reply was simple: "I don't have the contacts in other sports. And I don't have the infrastructure to carry it out."
"I certainly have the contacts," Garofolo told him. "And I don't have the money, but I know how to make it happen."
Russell was cautiously interested. He sent Garofolo copies of some of the university research he had sponsored about motivating children and building self-esteem through sports, and he explained his frustrations over the company's failure to win bank support. (NASC had lost its credit line years before, during a temporary business setback.) In turn, Garofolo introduced Russell to Jack Nicklaus, Jimmy Connors, and many other well-known athletes.
