What is the best way to facilitate growth? Growth needs $. Big growth - bigger $$.
Two sides of the Balance sheet to pick from: Cash, Debt, Equity - (and the Hybrids)
Cash: Cash is king. Churn Cash? Then re-invest the cash to continue growth.
Debt: Debt is predictable and is perfect for buying stuff (PP&E). There are terms, conditions, warrants. All of this is negotiable.
Types of Debt:
• Sr. Secured – think Mortgage- The Sr. part means they have the primary lien position, secured against the asset you bought.
• Jr. Secured- think 2nd mortgage- you are subordinate in lien position to Sr.
• Mezzanine: A hybrid debt or equity structure that is subordinate to the Sr &Jr, yet above the common stock. Typically a short term instrument based on your cash flow
• Unitranche: Combines all of the above at a blended rate. May or may not have equity component.
• Convertible: Can be anyone of the above that defaults into equity based on terms.
Equity:
You raise capital through selling shares of your company.
Great for hyper-growth. There are terms, conditions, warrants, covenants, provisions, clawback and lots of new legalese you need to understand.
Which to use? All depends on strategy. Likely, you'll need all the above pending your goals.
Can't have one without the other
Growth comes in many forms. Having a vision for the company, that is set into a strong strategic plan, with an actionable set of metrics and milestones is a great place to start.
Accretive growth is a very positive way to grow. A company can gain scale, synergies, new products, new markets, new talent that can all come together to facilitate further Organic growth. Done properly, there is a tremendous upside to the top end as well as to the Value of the larger company as a whole.
However, accretive without organic will usually not work. In most circumstances, it fails miserably. Adding scale and having a series of companies that are not synergistic, do not leverage customers, markets or even consolidate to save expenses is a recipe for failure.
You need continuity, ERP systems, synergies and a TEAM. You need to be able to consolidate, integrate and cross leverage people and processes. Buying companies can be sexy, and relatively easy. You can gain scale, but rarely can you gain value. Combining multiple low EBITDA companies does not create scale. It creates a bigger, messier low EBITDA company that still has no vision, nor a strategy.
Scale does not equate to value. #leadership #integration #strategicplanning
Culture
I have worked with lots of companies in lots of sectors; Agribusiness, Aviation, Plastics, Med-Tech, Ag-Tech, Bio-Tech, Waste and Recycling, Finance, Banking……….. Long and somewhat diverse list. I have worked with fortune 50 to small business executives, founders and start-ups over the last few decades.
The one thing that is relatively rare to find is the selfless leader. I define this person as someone who is confident enough to surround themselves with a team that is diverse and highly skilled. Truly acting on the statement, “I Hire people smarter than me”. It takes a very unique person to do this. Not many Alpha personalities can play in the same sandbox together.
When I see teams that are dynamic, there is one core value that the team has – Trust. Teams that Trust each other are competitive, yet supportive. Teams that Trust are able to adapt quickly to new ideas, processes and systems. There is disagreement, there can be passion for points of view and heated debates.
If you have this dynamic in your company, you are very lucky. If you want this dynamic in your company, you are not alone, as we all do. Perhaps a goal for many as we enter into a new year?
Building world class teams is not easy. But it is essential if you are trying to build a great company.
Ahh - The Old Days
I am a farm kid. I was raised that my word is my bond. My only asset in this world is the value of my promise and my last name.
In this day and age, we are all contracted up. We spell out what each party does, we have caveats, terms, conditions, warrants, claw back provisions……. in the event that "business" happens. Things go wrong, I get that.
Business is done when people work together and trust each other. When I look you in the eye and shake your hand, there is little in this world that will keep me from honoring my pledge.
Wouldn’t it be nice to do business with only a handshake again?
#business #nostalgia #ithinkimgettingold
Cliff Notes for your Pitch
90% of the investment requests I see are flawed, especially early stage. Here are some simple things to note when seeking capital.
1) Need to fund PP&E (property, plant or equipment)? Use Debt. Equity wont work. Need $10M to prove proof of concept? Then your investor will likely only be a strategic, and you best understand and covey a viable value proposition that fits their business model.
2) Understand your audience. Most Funds have a 10 year life cycle to deploy capital, grow the investment and exit the investment. If you cannot fit this model, adjust YOUR business plan.
3) Investors are money managers. They are not there to “help” you or fix your plan/business model. They are a fiduciary to others. If they offer advice, LISTEN to it.
4) Speak the language of BUSINESS. If they can’t understand your product, business model, market and opportunity in one page or less, fix it.
5) You need a TEAM. One person with a great idea or IP, does not a company make.
Your "story" and your Proforma must show that you know how to launch, grow and exit in a defined period of time.
If you take investment, your job is now to provide a return on that investment. If you don't agree with this statement, that is OK. Just don't expect an investment.
What is your Story?
As a follow up to my last post, I wanted to provide another bit of advice to entrepreneurs of all stages.
I get A LOT of pitch decks on my desk weekly. Are your documents fiction or non-fiction? Early, mid, late stage companies seeking capital, your investment documents must tell a compelling story, in a format that is brief, yet comprehensive. Whether you seek seed funding, or need a PE firm to partner with for growth, it really doesn’t matter. The majority of investors invest in the following criteria:
1) Management 2) Management 3) Management 4) Everything else
Simply put, investors invest in management’s ability to do all of the isht that is needed to grow a company in a risk mitigated manner, that will provide a return on that investment in a defined period of time. Your story needs to fit in that time frame, and so does your business plan and proforma.
Know about Sources and Uses: How much you need, where you will deploy that capital and how will that effect growth. That is the theme of your story
Can the reader determine these simple facts in 5 minutes or less?