The founders of Beekman 1802 weren't looking for money. The Sharon Springs, New York-based lifestyle company was doing quite well on its own, with $5 million in revenue. Target was stocking its pasta sauce; Bloomingdale's and Bed Bath & Beyond had just started selling its furniture and bedding.
But then last spring, Brent Ridge and Josh Kilmer-Purcell received three unsolicited offers to invest in their company. It sounded like great news, but it left them scrambling: The founders (who are married) had been so busy growing their company, they hadn't done a brand audit to analyze its strengths and weaknesses, so they had no idea how much Beekman was actually worth. Now they couldn't properly evaluate the offers. Were they generous? Or was the company being undervalued?
"I was surprised by how complex it is if you are not prepared for outside investments," says Ridge. "We were behind the eight ball."
Thanks to a flood of private equity cash and still-low interest rates, privately held companies are increasingly finding themselves faced with this situation. The numbers of angel investors and the ventures they funded both grew year over year in 2014, according to the University of New Hampshire's Center for Venture Research; overall angel investing was $24.1 billion, with three-quarters of that going to early-stage and expansion financing. Meanwhile, private equity funds that work only with small businesses upped their investments by more than 50 percent in fiscal 2014 from a year earlier, according to the Small Business Investor Alliance.
So what do you do if someone wants to give you money? First, call in the experts. Through a friend, Ridge and Kilmer-Purcell found a lawyer who specialized in such deals and knew exactly what to do: He helped the founders prepare a pitch document outlining Beekman's story, past financial performance, and three-year projections.
Next, talk to everyone--including other potential investors. Although you may not be looking for attention, agreeing to a chat is not agreeing to give up a stake. You could wind up with valuable information about market conditions and your company's worth, even if you have no interest in pursuing the offer. And if you are interested, all the more reason to start talking to other suitors, to see if you can get a better deal. "If someone has come to you, only very rarely is no one else interested," Ridge notes.
Finally, know your company's short- and long-term goals. If you have an idea of what you want to achieve several years out, you'll have a better sense of whether a particular deal is good for your company--regardless of the dollar amount attached. For Beekman's founders, that means considering money only from investors that agree to keep the business focused on lifestyle products inspired by small-town living.
"We want to find someone who understands our business and what we want to do, and who can still stay true to that vision," Ridge says. "We don't want to sell out, so to speak."
By late summer, he and Kilmer-Purcell had also decided to consider what sort of hiring and leadership support their investor suitors could offer. The founders are particularly hoping investors can help them recruit some seasoned executives with experience in retail and financial management, to address their lack of knowledge in those areas. "We feel like we've maxed out our skills," Ridge says. "We're just basically creative farmers."
Creative farmers, that is, with a lot of interested backers--and, now, a plan for assessing them.