NetworkingU – Realities of Funding Deals

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About this Post and the NetworkingU Event

CoolTea Door Chics - Suzanne Vick and Katie ScottThis post came about when I was searching my archive library looking for the article that appeared in the Fairfield County Business Journal about my Oct 7th 2004 CoolTea NetworkingU event at UConn Stamford – “The Realities of Funding Deals in Today’s Economy.”

When I found that article, I also found some corresponding outbound emails – one of which that promoted both the NetworkingU event and a reference to a Greenwich Film Festival event honoring Celeste Holm that Katie and I attended.

The timing was a bit strange in that just last week several media outlets reported that Celeste Holm, the award winning actress, had passed away at 95 in NYC.

In rereading those emails, I realized that some of the quotes from VCs back then are just as relevant today hence this post. I’m also including Celeste’s quote as I also believe her advice is just as valid for young entrepreneurs as it is for aspiring actors (see the next tab, Quotes Along the Way).

FYI – About the CoolTea NetworkingU Event

My original vision for CoolTea back in 1996 was to host business networking events at leading Universities with the goal of connecting technology-savvy multimedia students and faculty with the corresponding local business community.

Suffice it to say that eight years later after a zig-zag event path, in the summer of 2004 I finally found myself on deck with a visionary dean at UConn Stamford’s School of Business Administration, hence that Oct 7th 2004 NetworkingU event.

It was exceedingly successful event on many levels but for me it was more of a testament to completing a loop.

Back in 1996 when I coined the phrase CoolTea – I graphically split out the E to be a triple-E to highlight “Education, Entertainment, Ecommerce” as I believed that all online efforts can be distilled to one or a hybrid of those three E’s.

And I still do, but that is discussion for another time.

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Quotes from Funding Experts Along the Way

Chuck Scott at the podium, seated left to right - David Sederholt, Louis Gagliano, Douglas Campbell IIIIn one Sept 2004 outbound email promoting the upcoming CoolTea NetworkingU event, I summarized numerous conversations with sundry funding experts when putting together the panel.

Technically, I thought some of the most important conversations were the ones “off the record” which you can get a sense of below.

I should also mention that at the time of this post, I still find this business funding wisdom holds true even today – viva the classics and timeless wisdom shared.

From my Sept 2004 Outbound Email

… Last night’s Greenwich Film Festival event honoring Celeste Holm was a star-studded evening of great fun. I had an opportunity to ask Ms. Holm what one piece of advice she would have for young people given her experience – without hesitation she stated, “Be Present. Take advantage of what is immediately in front of you. Don’t wait.”

I’ve also assembled some of the more interesting quotes I heard from leading New England venture capitalists, investment/merchant bankers, angel investors, entrepreneurs, management professors, coaches, journalists, and others in the deal making channels when putting together our Thursday Oct 7th NetworkingU program – enjoy!

  • Everything you need to know about doing deals you learned when you were 10 running a lemonade stand – perhaps you were on the wrong corner and your Grandmother was your only customer.
  • Nothing has really changed just that there are those out there who feel that in order to be experts, they need to rename all the animals in the zoo and then sell you on the new critters.
  • Twenty years ago you could pitch and get money. Then once a month or so, you’d go into a board meeting and they’d beat you up. Then the money folks started assigning experts, but you had to question how expert was expert. I mean a guy can know everything about the ice cream industry but that doesn’t mean he knows squat about selling nonfat yogurts.
  • If you write a business plan and don’t know where your money is coming from, you aren’t going to get funded. It used to be different. In the 70’s it was one way, the 80’s another, the 90’s another, and today it’s different yet again.
  • I can close a 40 million dollar deal in 15 days. Consider how the big firms with their policies and committees would take the better part of 6 months.
  • A huge amount of investment is going into unregulated investments. People don’t trust the regulated deals and are tired of the lack of returns. My team is consistently returning 15-20 percent returns.
  • Deals today? Oh boy, you wouldn’t believe what we invest in. Lawsuits, trademarks, and other hot intellectual property areas can be really lucrative – it’s not like we have to always have stock.
  • Business Plans. Please, if you can’t get it down on one page and tell me what pain you solve and how you’re gonna solve it, then you haven’t thought it through and I’m not going to be able to help you.
  • Pre-revenue deals don’t pay for me. Show me a 10-100 million team and then I’ll get excited.
  • Institutions all do it by analysis of the numbers, regardless of what they say.
  • Our team raised and placed 200 billion since 2000 for women-only businesses.
  • It ain’t jet money – a common saying that means the deal has a yield but won’t fund me a private jet.
  • I get a kick out of reading some of these business plans. Sure, it’s good to have the 10,000 foot view of saving the world but at the end of the day you have to bring it down to the one foot view – what are you going to do day-by-day to make it operational, that’s what I look at.
  • Doing workout deals can be extremely lucrative. Many of the really big guys don’t want to come across as bad neighbors in their communities, so they often sell the troubled deals to us and we work ’em out.
  • Investing in films can pay out big. As long as you get some big screen exposure, the secondary outlets like cable and overseas distribution are the real pay out. We had one movie that returned 40 million from these secondary licensing deals on a 1.5 million investment to make the movie. The key is getting that initial distribution for big screen, then it’s home run time.

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Article that Appeared in the Fairfield County Business Journal

Article that appeared in the Fairfield County Business Journal after the NetworkingU eventBelow is the text from an article that appeared in the Fairfield County Business Journal’s Week of October 18, 2004 edition.

Raising capital an uphill battle for small ventures, panel says
By B.Z. Khasru

Unlike in the 1990s when almost everyone with a business idea could win venture capital, today’s funding environment is pretty rough, although recent figures show a 30 percent surge in investment so far this year over last year.

That was the observation of one panelist at a discussion on “Realities of Funding Deals In Today’s Economy” at UConn Stamford.

“It’s starting to come back,” said Douglas Campbell III, managing director of Success Coach, an executive coaching firm. Still, the Darien resident said, private sources remain the best alternatives for entrepreneurs seeking capital.

Louis Gagliano, president of Micro Credit Bridgeport Enterprise Inc., which helps entrepreneurs with funding sources, said smaller enterprises face an uphill battle to draw investors’ attention.

“On balance, the environment is bleak, but it all depends on what size your company is,” he said.

David Sederholt, partner at Dovetail Partners L.L.C., a Greenwich firm that invests in small and midcap consumer-branded ventures painted an even bleaker picture.

“Most of the banks are not interested in funding your business unless you put up your house or your first-born child” as collateral, he said.

The discussion was organized by networking firm CoolTea in collaboration with UConn Stamford Business School. Steve Bowling of The Prometheum, a socio-political group in Stamford, moderated the forum attended by about 40 people.

When raising growth capital, businesses should seek 50 percent more than their anticipated need because they often to underestimate their requirement, Campbell said.

However, Sederholt cautioned, entrepreneurs should avoid inflating their projections.

“We see people come up with exaggerated business plans, but they can’t prove it,” he said.

And, presentations to investors should be short and sweet. Business plans should have no typos and avoid “self-aggrandizement.”

“Give us an executive summary that tells me what I need to know,” Sederholt said. “You have to be clear. You have to be concise. You have to make me understand what it’s all about. If you can do that, you are going to win.”

Business owners’ background plays a crucial role in winning over investors.

“You have to have to have credibility that you can deal with key issues,” Gagliano said.

Clarity and vision are two key ingredients in persuading investors.

“If your numbers are clear and they are reasonable, you will get attention,” said Sederholt, founder of Rattlesnake Grills and Redheads Bistros, which he financed and took public.

Campbell added that “management is important” too. “A lot of VCs look at who are on the management team.”

Gagliano said investors look favorably when entrepreneurs put their money into their businesses.

“If principles are not interested in investing their company, how can they expect investors to invest? Sweat equity is important, but it does not always cut it,” he said.

Is there a magic formula to win funds?

“It really comes down to explaining your niche and having a management team,” Campbell said.

The panel members agreed an exit strategy is important. Most VCs are looking to a three-to-five-year horizon to cash in on their investments. And, having an exit strategy is not necessarily a “negative thing,” Sederholt said.

He advised entrepreneurs to check out references and previous deals handled by investment bankers before picking one to make an initial public offering.

“There are charlatans out there in the financial services industry like anywhere else,” he said.

Gagliano suggested getting help from “independent advisers” before hiring an investment banker. But Sederholt was against getting business advices from lawyers. They tend to view things unnecessarily negative, he said.

“If you hire an attorney as your business adviser, I guarantee you will get nothing done,” he warned.

A word of wisdom for entrepreneurs came from Campbell: “Follow your passion.”

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Event Photos

Below are a couple of candid photos snapped by Maureen Boylan who at the time was a NetworkingU exhibitor promoting her event services.

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