"The venture capitalists offered to find me the rest of the money, but I did turn that down. First, I wanted to try raising the money myself. And the truth is, once my other contacts knew that we had $6 million committed, there was a feeding frenzy. I had a dozen firms that wanted to get in on the deal. That's how we ended up with $12 million."
6. For R&D
THE DEAL: Private placements of $1.8 million in 1998 and $4 million in 1999
THE ENTREPRENEUR: Jim Reiss Jr., CEO
THE COMPANY: Coollogic Inc., in Dallas, which manufactures Linux-based Internet-access devices
REVENUES: Undisclosed (25 employees)
BACKGROUND: As experienced entrepreneurs who had previously built a technology company, Reiss and his cofounder, Rob Wood, were able to raise $500,000 for Coollogic from a private-equity firm before finalizing their incorporation. When the investment firm decided to divide its stake among its shareholders, Reiss and Wood ended up with about 1,000 accredited individual investors.
"We financed our earlier company through personal savings and then from some angel money and then brought in a venture-capital firm. But we were fairly disheartened by the time we left that company. We were in a minority position by then; we didn't like the way the venture capitalists were running things," Reiss says.
"With Coollogic, we took a situation that could have made things difficult for us -- suddenly winding up with such a big shareholder base -- and decided to turn it into something good. We made up our minds very early on that we were going to treat our shareholders the same way we would if our company were public. And we were going to make sure that our financial statements were accounted for according to the same high standards that we would need to meet if we were public. We thought decisions like those would help us to build enormous investor confidence.
"I made it a major personal priority that I would take every single call that came in from one of our investors. We frequently communicated new developments through shareholder letters. We wanted to make sure that people really understood what was going on with the company and where our growth prospects were. And because we were successful in building that kind of relationship with our investors, they really supported us when we went back to them for more capital.
"My partner and I have a completely different attitude with this company. We own less than 20% of Coollogic's equity, but that's OK because we're really building something of value here. Entrepreneurs make a big mistake when they think they have to hold on to 100% of everything. That's when they have nothing: they have zero value. They have a piece of paper, an idea that may never go anywhere. How do you wind up with something worth more? The only way is by partnering with people who have money and leadership and vision and can help you make it all happen. That's what's going on with us now."
7. For a Company Purchase
THE DEAL: A $592,000 Small Business Administrationbacked loan from a nonbank financial institution
THE ENTREPRENEUR: Masoud M. Anwarzai, president
THE COMPANY: Marathon Runner Courier Service Inc., a messenger service in Santa Rosa, Calif.
REVENUES: $750,000
BACKGROUND: Anwarzai bought this 30-year-old business last fall for $600,000 and needed to finance part of the purchase.
"When I bought my company, I knew that I would need financing, and my business broker recommended that I try Heller Financial because it's very active in the SBA-loan market. That was a good piece of advice. From the point at which I applied for the loan until we closed, it was less than 45 days," Anwarzai says.
"It really made a difference to be dealing with a loan officer who understood my needs as a small-business owner. Originally, I just applied for $450,000 -- which would have covered the financed portion of the purchase -- but she recognized that it would be helpful for me to have some working capital also. She helped the deal go through at a higher level, without any problems. Fortunately, the company's financials were strong, and my own credit history was good. It all went so smoothly.
"Was that surprising? Absolutely. But other good things happened as well. I really like the way the loan is structured. I've borrowed the money for 10 years, which seems like a reasonable time, but if I can manage to pay it off earlier, there aren't any prepayment penalties. That was important to me.
"Between the business broker who handled my acquisition and the loan officer, it actually felt as though my part was pretty simple."
Jill Andresky Fraser is Inc. 's finance editor.
Please e-mail your comments to editors@inc.com.
