More Strings Attached

Tweet

Don't expect the due-diligence requirements -- and other related control factors -- to end when you manage to persuade a VC to sign on the dotted line. "Milestones are an increasingly big part of the landscape in ways that we haven't seen for a long time," emphasizes Stephan Haimo, a partner in the New York City office of law firm Gibson, Dunn & Crutcher LLP. "It's no longer unusual to see deals that spell out controls and targets on a three-month, six-month, and nine-month time frame. Owners that aren't willing to go along with these restrictions are going to find themselves unable to raise money, at least for now." Expect to see a similar tightening in controls in any capital deal your company manages to close within the current environment, including bank loans and angel investments.

But Farnsworth, for one, is scarcely complaining. "It's true that our valuation ended up being about half of what we wanted -- or would have gotten if we had been ready to go after this round a little earlier than we did," she says. "But the good news is, we got the deal done."

Jill Andresky Fraser is Inc's finance editor.

Related links on Inc.com:
" How to Get Funded Now: Two VCs Weigh In"
" Quiz: Are You Ready to Get Funded?"

Pipe Dreams

Wondering where venture capitalists and other private-equity investors have been spending their money these days? One interesting source of statistics is a new Web site, www.privateraise.com, that tracks all kinds of deals in the capital marketplace, including the PIPEs (private investments in public equities) that attract funds that otherwise might have gone to private companies like HealthHelp.

During the first five months of 2001, $43 billion worth of PIPE deals were closed, signed, or announced, adding up to 618 transactions. And those numbers should keep rising, according to James F. O'Brien Jr., a managing member of Promethean Asset Management LLC, a New York City-based investment-management firm that frequently invests in such deals. "In troubled times like these, public companies turn to the private-equity markets because they don't have the same financing opportunities that they might otherwise possess, either by selling more stock in the secondary markets or by borrowing whatever money they need from banks," he says.

Why are these deals so successfully drawing funds from VCs and other private-equity investors? "It's the fact that PIPE issuers have already carried out their IPOs that makes them so appealing to private-equity investors," says O'Brien. "They know they'll have a greater chance of liquidity."

Hands On

Christopher Franceschelli worked for large publishing houses for 18 years before launching his own company, Handprint Books, in Brooklyn, N.Y. Getting his tomes distributed in bookstores wouldn't be easy or inexpensive, so Franceschelli decided to join hands with two other children's-book publishers. Together the three companies negotiated a better distribution deal than they could have gotten alone. Under the terms of their recent contract with Chronicle Books, Franceschelli and his partners expect to save 10% to 15% in distribution fees. Two of the companies are also sharing the cost of producing a joint catalog. What's more, Franceschelli is creating an organization to help publishers negotiate group advertising rates and joint exhibitions at trade shows. "It's really about collective marketing," he says. "No matter what you're negotiating, it's a model you can use."

--Susan Greco and Thea Singer

The Whole New Business Catalog

What's Love Got to Do With It?
Site Gag
Using Your Noodle
Oprah Gets Psyched
More Strings Attached
The Messenger is the Medium

Please e-mail your comments to editors@inc.com.

 PREV  1 | 2 

Read more:

Sign-up for our Finance Newsletter

Email Address: