From new twists on time-honed tactics to the brave new world of Internet financing, here are strategies that can help land your business in the money.
HOW TO FINANCE [almost] ANYTHING
From angels to local banks, from online investors to private-equity firms, persistent executives are finding the sources of money they need for their growing companies
1. For Growth
THE DEAL: $5.6 million raised through an online private-equity offering
THE ENTREPRENEUR: Sean Moshir, CEO
THE COMPANY: PatchLink.com, a provider of online software updates and patches in Scottsdale, Ariz.
REVENUES: $6.4 million
BACKGROUND: The company was founded under another name in 1991 as a provider of enterprisewide management software. It has grown to 25 people and has had positive cash flow for the past five years.
"Our original goal was to raise about $3 million," says PatchLink.com's chief financial officer, Robert A. Lettieri. "So I started contacting everyone that I could through my personal network from my prior experience with the capital markets.
"We started locally, trying to figure out who had an appetite for tech deals in Phoenix. But that base was quite thin. So then I reached out to people I knew in financing centers like New York and California. I must have contacted about 30 people I'd worked with in the past. But they were so busy that they weren't interested in deals of our size or in reaching beyond their local markets.
"We ended up getting term sheets for two possible investor groups out of Texas and Kansas. Those deals weren't very appealing, though. They were kind of egregious in what they wanted us to commit to, in terms of hurdles that we needed to achieve. Fortunately, someone that I knew introduced me to someone else who wound up suggesting that I talk to someone at OffRoad Capital [an online private-equity firm]. That was intriguing because they were really trying to do things differently."
CEO Sean Moshir picks up the story: "OffRoad liked us because we had a product-development track record that we could show to possible investors. And we liked OffRoad because they weren't just sticking to the same old venture-capital mode. Instead of a traditional road show, we did a live Web-cast one, which was great because potential investors could watch us and learn about our company in the convenience of their homes.
"The best thing of all about the process was that we ended up raising even more money than we expected to, without needing to give up any more of the company. If you have an initial public offering and you go public at $12 but the stock climbs to $40, your company doesn't get the extra cash from that run-up. But with OffRoad, because the sale was conducted like an auction, we ended up selling at $4.57, rather than $3.25 as we originally intended. And the difference went to us. Venture capitalists always try to sell you on their network of contacts. But the truth is, we didn't need it."
2. For Expansion
THE DEAL: $50,000 from an angel investor and a $150,000 seed-capital infusion from an early-stage venture-capital firm
THE ENTREPRENEUR: John Ferretti, CEO
THE COMPANY: Foxfire Printing and Packaging Inc., a printing company in Newark, Del.
REVENUES: $8.5 million
BACKGROUND: Ferretti founded Foxfire nine years ago as a traditional printer. It has been profitable and growing. He now aims to further increase his growth by diversifying into order fulfillment and printing services for Internet companies.
"I always believed that it made sense to build the foundation of my company, demonstrate that I could operate a successful business, and then look for ways that I could leverage that into more rapid future growth. So I didn't try to raise outside money for the first couple of years I was in business," Ferretti says.
"Still, I did concentrate on getting to know people and building a credible reputation for myself within my state's business and financing communities. One of the ways I did that was by helping to cofound Early Stage East, which is a two-day event that we host in Delaware to bring together entrepreneurs, venture capitalists, and investors. I know that if I had just approached these people cold as a guy who had a printing and fulfillment company, they might not have paid much attention to me. But my involvement in Early Stage East made it possible for me to start building some important relationships and to have a lot of conversations with different people about my company and my business plan and where I saw myself heading.
"I'm realistic. I knew that I didn't have the experience or the kind of company that would be able to bring in professional investors at the early stage of financing. So I concentrated on the angel community. The person who decided to invest in my company is an experienced businessperson who is interested in future liquidity, just as I am.
"We both hope that this company will be able to go public one day or merge with a larger company. Thanks to his funds and the additional investment that came in from the Delaware Innovation Fund [contacts with both that venture fund and the angel were made through Early Stage East], I've been able to pursue the Internet side of my business, which is what I believe will help us achieve the most profitable growth."
3. For Operations
THE DEAL: A $200,000 bank credit line
THE ENTREPRENEUR: Susan Ernst, copresident
THE COMPANY: Royal Electric Construction Corp., an electrical and telecommunications contractor in Columbus, Ohio
REVENUES: $5 million
BACKGROUND: Ernst and her husband purchased this 27-year-old company six months ago and have launched a growth strategy that depends, in part, on diversification through acquisitions.
