HARD LESSONS
'My memorandum probably just sat on a lot of people's desks.' --Tim Bocher, cofounder and CEO
COMPANY: Virtual Frontiers, in New York City
BUSINESS: Internet consulting and E-commerce
1998 REVENUES: $500,000
NEEDED: $5 million to $10 million in growth capital
FIRST TRY: Private investors
Tim Gocher financed Virtual Frontiers, which he founded in 1995, with his own money. But by last year he realized that further growth would be difficult, if not impossible, with that financial model. "I needed to offer my customers a one-stop shop. I couldn't do that without raising capital," he says. "Initially, early last year, I thought we would need $5 million to $10 million and felt that the right way to raise that would be from private investors or venture capitalists. So I started talking to some of them. But then I realized by the summer that merging with a strategic partner, with the goal of eventually taking our combined companies public, made more sense." With the help of his accounting firm, he developed an investment memorandum that he circulated to every possible contact he could think of. "But I got almost no leads at all from that course," Gocher says. "My memorandum probably just sat on a lot of people's desks."
Not one to waste time on a strategy that wasn't working, Gocher shifted gears within a few months and hired Ben Boissevain of E-Technologies International, an investment banker who specializes in serving technology companies. "I agreed to pay him a monthly retainer, as well as a commission based on the final financing package," he says. "But the money was worth it, since he was able to help me find the kind of deal I wanted."
In a transaction that closed on New Year's Day, Gocher swapped his stock for a multimillion-dollar package of cash plus stock in a larger Internet-systems company, SenseNet, the name under which the two merged companies will operate.
HARD LESSONS
'Don't expect a bank to know what's best for your business.' --Lisa Argiris, founder
COMPANY: Music Starts Here, in Des Plaines, Ill.
BUSINESS: Musical-instrument rental
1998 REVENUES: $500,000
NEEDED: Line of credit for capital-intensive business
FIRST TRY: Longtime banker
Lisa Argiris started her first company, International Musical Suppliers, out of her dorm room in college 13 years ago and landed her first line of credit, for $50,000, just four years later. "It took me a long time to realize that my bank was really just interested in supporting me because of my public-relations value to them--as a minority and female business owner--not because they really understood or believed in my business concept," she says.
The more aggressively Argiris pursued growth, the more her bank balked. "The company, which was a mail-order house for instruments, really grew in sales--it's up to $4 million today--but the margins were slim. I knew it made sense to diversify." Six years ago Argiris established Music Starts Here, an instrument-rental business that serves local schools. "Its margins are going to be much higher, but the company is very capital intensive in getting off the ground," she notes. Argiris was unable to get an adequate line of credit from her bank.
Last year she decided to shop around for a new bank, finally landing a $1-million-plus loan package from Citibank, based on the track record of her first company. She concludes: "If you're unhappy with your banker, move on quickly. If he or she only wants to support you because you're a woman or a minority or whatever, don't waste your time. And above all else, don't expect a bank to know what's best for your business. You've got to know that--and know how to communicate it to them."
HARD LESSONS
'I've been knocking on bankers' doors for years now.' --Mario Tolisano, cofounder and president
COMPANY: Ciprietti-Tolisano Associates Inc., in Tuckahoe, N.Y.
BUSINESS: Construction
1998 REVENUES: $5 million
NEEDED: Credit line to cover payroll and operating expenses because of an industrywide problem of late payments
FIRST TRY: Banks
Don't talk to Mario Tolisano about bankers. He's been pursuing bank financing, with little success, for years now as his company developed from a part-time venture with less than $200,000 in revenues to a full-time business. "Invariably, I end up being a banker for my customers. What we need is enough of a credit line to cover our payroll and operating expenses for 30 to 60 days," he says. But no luck. "I've been knocking on bankers' doors for years now, but the minute you tell them you're a construction company, they laugh at you," he says. "It seems as though I've spent my whole life chasing after money, only to find every door closed."
Tolisano has funded his 13-year-old company's growth mainly with personal savings and some contract-financing credit that he was able to land, albeit at a high interest rate.
Finally, convinced that he could spend the rest of his life unsuccessfully chasing after an adequate credit line, Tolisano decided to enroll last fall in GE Capital Small Business College, which runs a three-month part-time program, organized around such key issues as financing alternatives, strategic planning, and accounting.
