After the conversation, Brown, Gibbons staffers critiqued Russell's performance by giving him a kind of script that told him, "This is what you did naturally. Now let's look for ways to get your message across even more strongly." One conclusion the investment banker's group reached was that Russell gave such a powerful presentation that the presence of other NASC managers would serve only as a distraction. "The thing I learned, more than anything else," Russell says, "was that the most compelling part of my company's story, from a potential investor's viewpoint, was me."
Scott agrees. His initial conversation with Russell took place by telephone. "In one of those conversations, I'll ask a lot of questions to try to identify where the real risks are in a business. But in the end, what I'm trying to do is get a real sense of the business owner. How passionate is Gary about his company and his prospects?" He pauses. "I've been making deals for 10 years now, and I can tell you, I'll be off the phone in 15 minutes if a business owner comes across as lackadaisical or lacking in energy."
Finding the Right Fit
The chemistry between Scott and Russell was good, so when the investor suggested a trip to Sirrom's Nashville office, the CEO happily agreed. He went in May, along with Bill Vogelgesang, to give a full-scale, three-hour presentation.
"It might seem as though we're far along at that stage, but the reality is it could still have fallen apart," Scott says. "That is the time to be pessimistic, to really challenge a business owner about whether his company and his deal make sense." Scott and his colleagues liked Russell. They did feel, though, that his fund-raising target of $2.5 million was too high, based on the company's current numbers. It was time for Sirrom's own investigations to begin.
One reason private-placement investors don't sway in the wind every time the stock market rises or falls is that they usually perform elaborate due-diligence investigations themselves--on top of the investment bankers' reports--or confine themselves to those industries they know very well. In NASC's case, since the company operated in such a specialized business niche, Scott was forced to rely on more unusual research efforts, which included evaluating the company's sports-merchandising potential through an athletic-shoe retailer he knew.
By mid-May 1996, Scott faxed a one-page financing proposal to NASC's headquarters. Its purpose was to lay the groundwork for future conversations--although a final offer could still be withheld if Sirrom learned anything about the company that gave it pause. The proposal offered a five-year loan of $1.5 million, with the potential for another $1 million to be provided if the company met a series of performance objectives. The interest rate to be charged was 13.5%, with a 2.5% fee attached to the deal.
Private placements run the gamut from all-stock deals to debt-and-equity combinations of all varieties, depending on the investor's threshold for risk and the company's financial strengths and weaknesses. The deal NASC was offered was pricey, of course, but it had some strong advantages. Sirrom wanted warrants for only 16% of the company's stock, compared with the majority stake most venture capitalists would have required. Another plus was that Sirrom didn't insist on one or two seats on Russell's board. All in all, the deal looked pretty good.
By early June, Scott was ready for a final visit to NASC's Norwich offices. He wanted to meet Russell's team of executives, tour the facility, and develop his own sense of whether the company's infrastructure could handle accelerated growth if it happened. It was also a good time to get a sense of the coming summer's business realities, which added up to 725 soccer camps with about 50,000 campers; 150 football camps for about 12,000 kids; and 64 pilot golf camps for about 4,800.
Scott flew from Nashville to Hartford on a Wednesday afternoon in mid-June, raising the anxiety level at NASC's headquarters to a torturous pitch. Russell had been awake most of the night before with bad dreams, mostly about rejections from either financiers or potential sports partners. He'd spent hours choosing the waterfront restaurant in the nearby village of Mystic where he and Paul Lawrence would dine with Scott and Vogelgesang.
"This is the most important 24 hours in our company's history" was the way Colin Redhead felt as he drove to the airport to pick up Scott and Vogelgesang, prepared to answer whatever financial questions they might have for him along the way. Dinner was a relatively relaxed, even enjoyable, three-hour affair. But the next day Scott resumed his intense investigation.
"Since I'm not a financial person, there were times when John Scott would ask an investment-banking-type question in language that just wasn't in my vocabulary," Russell recalls. "At those moments, I just let Bill Vogelgesang take over. But I wouldn't call those awkward moments. They were growing moments for me because I was still learning as I was going along."
