The investment bank conducted an exhaustive investigation into the company's financial history and infrastructure. "We don't do ourselves, the client, or potential investors a favor by going into a deal without testing the waters," explains Vogelgesang. Corporate minutes, articles of incorporation, audited financial statements: there wasn't a document of possible significance that slipped by Brown, Gibbons's attention. For companies with larger financial staffs and better record-keeping systems than NASC had back then, the due-diligence phase might have proceeded somewhat more quickly. But unless a company is always in the market for capital and has a sophisticated chief financial officer to supervise those activities, it's demanding to launch a private placement.
"Our early memorandum was full of our projected numbers about the company's potential sales and earnings," Redhead says. "When the Brown, Gibbons people came in, they didn't even care about our projections or that early memorandum. Their attitude was, if they liked what they saw, they'd come up with their own projections and draw up a memorandum the way they knew how to do it."
Reaching Out to Investors
By the end of September, the company's money prospects were looking stronger. Brown, Gibbons had decided to accept the assignment (for a fee, which ended up being 10% of the money raised and 5% of NASC's stock). That gave the CEO a team of advisers that included Paul Garofolo (who was focusing his efforts on building major-league and professional contacts) and Bill Vogelgesang (whose goal was to draw up an offering memorandum, come up with a list of potential investors, and circulate the company's vital statistics to groups that might be interested in a small, youth-oriented investment).
It was the toughest period the company had ever navigated through. While Vogelgesang started work on the offering memorandum, Russell and his staff successfully negotiated with the NFL to design and run a weekend-long pilot football camp that autumn. They were also heavily involved in negotiating a Major League Soccer affiliation and a pilot golf-camp program with Golden Bear. Topping it all off, they were entering their busiest sales season, when regional staff members started touring the country to sign up potential campsites.
To help NASC through the inevitable cash crunch that would accompany its early diversification efforts, Brown, Gibbons used its connections to help the company qualify for a six-figure credit line from a regional bank, its first credit in nearly a decade. Money helped, but it didn't eliminate the pressures on Russell and his 20-plus full-time employees in Norwich.
"Everything took longer with NASC than it arguably needed to," says Vogelgesang, who spent the next couple of months tracking down all the numbers and other details he needed for the offering memorandum. "But I couldn't blame them, because they were trying to run down so many different things at the same time--the financing, the different professional affiliations. You couldn't help but sense that this small company was being stressed. Gary was constantly reminding me that it wasn't his mission in life to be a full-time fund-raiser."
Russell learned from Vogelgesang and his team how to convey his message simply but confidently to potential investors. Fortunately, he has the gift of gab, as well as a passionate commitment to his business philosophy. And he was experienced at pitching his company to community groups and potential campers. All he needed was some training from Vogelgesang and his colleagues to be certain that he didn't scare off potential investors with too many details and not enough big-picture answers during preliminary conversations.
By the beginning of April 1996, Vogelgesang and his staff had finalized a 24-page confidential offering memorandum, complete with six appendixes describing the company's finances (with projected revenues of $5.7 million in 1997 and $10.6 million in 1998), job descriptions, and other key matters. Rather than mail out the entire book, he faxed a several-page executive summary to about 100 investors whom he considered good possibilities. Then he followed up with telephone calls. "A good positive-response rate is 10%," he reports. NASC was just about on target.
Gaining the attention of potential investors is far from simple. John Scott was one of the investors who received the summary. As a vice-president of Sirrom Capital Corp., a specialty finance firm in Nashville, Scott maintains relationships with investment bankers in nearby states in the hope of generating leads to promising small businesses. Sirrom Capital, with its $197-million loan portfolio, is scarcely a giant company, yet it receives about 150 financing approaches each month. "Had Gary Russell just sent this proposal in on his own, over the transom, we'd probably have told him, 'It sounds like a nice business, but we're going to pass,' " Scott says. "But I respected Brown, Gibbons's judgment enough to pay attention.
"If I'm interested enough to request the offering memorandum, I'll probably spend a couple of hours analyzing it, deciding whether I want to have an initial conversation with the business owner," Scott ex-plains. In the case of NASC, he decided he did.
Eventually, Russell had preliminary conversations--generally lasting between 60 and 90 minutes--with a handful of investors, either in person or by telephone. Vogelgesang arranged the first one with an investment group that was interested but not the likeliest of partners for NASC. That allowed Russell to view the conversation more as a dress rehearsal than a win-or-lose performance. "I was very nervous," he recalls. "I was afraid I would say the wrong thing and forget to say all the right things. I was very surprised by how long they kept me sticking to myself and my company's story--rather than getting to the numbers, which I thought they would want to do."
