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Oct 2
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The third reason to go or remain private is access to capital. This axiom applies to the smallest companies among those that are or are seeking to go public. In broad strokes, it applies less to companies with more than $100 million in revenue and increasingly more as a company's revenue drops further below $100 million.
There are many in the business of facilitating small IPOs and reverse mergers that would suggest that one of the reasons to go public to improve access to capital. Our experience would suggest the opposite. The smallest public companies have very limited access to capital and would actually have an easier time raising money in the private markets--where many investors will not even consider public companies.
 The capital available to the smallest public companies is often much more expensive than venture capital or other capital available to private companies. The typical features of such rounds of capital include floating conversion features that allow investors to convert debt or equity into an infinite number of common shares. This can virtually assure the investor of recovering all of its money, but at the expense of all of the other investors--and managers. Small public financings also tend to feature more up front fees, often paid in equity--subtly but meaningfully increasing the cost of financing.
While I hate to harp on the costs of being public, but at the risk of redundancy, I'll note again that the costs of being public often reduce or eliminate profitability, which reduces or eliminates a small public company's access to debt capital.
In contrast, the private equity markets are flush with cash. Venture funds are looking for more good deals, private equity groups are actively working to take good, undervalued public companies private, and even hedge funds are dabbling in private company transactions.
Bottom line: for small, growing companies, private is the place to be for raising capital.
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May30
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 Term Sheet: A Term Sheet is customarily presented by an investor to a company seeking capital as a non-binding outline of the structure of the proposed investment. It typically contains basic deal terms, but not the details.
There are some elements of a term sheet that are typically binding. Frequently, there is a no shop provision that prevents the company from showing the term sheet to other candidate investors.
Once a term sheet is executed, the parties typically act as if it were binding. They all work toward closing a deal that looks and feels like the deal they'd agreed to complete in principle.
During this final stage of funding, the investor's diligence efforts will continue. As a result, material changes to the deal may be required. Such changes should not be presumed to be malicious on the part of the investors.
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May 3
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CFO.com reports today that the number of LBO's (leveraged buyouts) among public companies with a market capitalization of less than $2 billion has an annual rate of 52 (13 in the first quarter), a pace not seen since 2000. This is also a big step up from the 39 marked last year.
 Of course, there are three quarters left to run this year and no guarantee the pace will continue.
From my vantage point, I am seeing a couple of key drivers for the level of activity. Banks are lending more aggressively than any time I can remember in the last twenty years. Leverage allows for deal values to increase with the same amount of equity investment from private equity sponsors. Increased deal values brings more sellers into the market.
This is a great time to sell a business.
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Feb20
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 Asset Based Lender: Asset Based Lenders, frequently abbreviated ABL, specialize in making loans to companies that may not be able to qualify for the loans based on their income and cash flow. In contrast to traditional commercial banks (though many ABLs are affiliated with banks) ABLs focus on assets.
Underwriting criteria of ABLs vary meaningfully, but they will generally lend up to 70 or 80 percent of company's eligible accounts receivable (A/R) and up to 50 percent (at most) of eligible inventory.
Eligible A/R will typically include accounts due from commercial customers with a good payment history; eligible A/R will typically exclude past due accounts and consumer accounts. Adjustments are typically made for concentration, that is, having more than a threshold percentage of A/R due from a single customer.
Eligible inventory will typically only include finished goods inventory, located in domestic warehouses, excluding obsolete inventory, inventory in transit, work in process inventory and most raw materials.
ABLs are key players in the successful execution of leverage buyouts (LBOs) or management buyouts (MBOs), where the new structure of the company may not give a traditional bank the comfort to lend.
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Feb15
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Know More:
Acquisition, Business Valuation, Buying a Business, Due Diligence, Executive, Fairness Opinions, IPO, Investment Banking, M&A, Mezzanine Debt, Private Equity, Raising Money, Sarbanes-Oxely, Selling a Business, Senior Debt, Venture Capital, Business Valuation
In a political context, we talk about liberal and conservative, Democrat and Republican, Bush and Clinton.
 In accounting, we talk about aggressive and conservative. The traditional notion was that accounting entries that resulted in understating actual earnings were “conservative” and entries that led to overstating earnings were “aggressive.” The question for entrepreneurs and executives might be, “which is best for maximizing the value of my business?”
The SEC and FASB (the folks who define Generally Accepted Accounting Principles or GAAP) view it as their primary objective to end this discussion in favor of being “simply right.”
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Feb13
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Brad Feld, one of my favorite VC bloggers, posted about an article that one of his partners, Chris Wand, had written about debt financing.
What a great time to borrow money. I've never seen banks so eager to lend in my entire 20+ year banking career. Things won't always be this way. In a few years, there will be a recession and the banks will see higher credit losses and will increase credit standards and relative pricing to reduce their exposure to marginal credits.
S o Congress will hold hearings. In one hearing room, say in the House, they'll talk about why credit losses are up and what were the banks thinking back in 2006 anyway! In another, say in the Senate, they'll hold a hearing to discuss why banks won't make loans any more. After all, "my constituents are good credit risks" each Senator will say. Trust me on this, I've been there.
So, take advantage of the market while you can. Just remember, the credit loss they may be talking about in Congress, could be about this great little business backed by some smart VC's who had the brightest prospects--before the recession started.
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Jan26
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Know More:
ACG, Angel Investment, Brian Lloyd, Buying a Business, Deal Makers, Entrepreneur, Mezzanine Debt, MountainWest Capital Network, Organizations, Private Equity, Raising Money, Selling a Business, Senior Debt, Todd Stevens, Tom Taylor, UITA, Venture Capital, ACG
As an entrepreneur or mid-market executive, you really want to know a few key people in the "deal community" in your local market. Typically, these folks can be found in one place, one group, one organization, one association. In larger towns, there may be several key groups to join.
 In Salt Lake, where I live and work, there are several organizations. The first group on the scene was the MountainWest Capital Network (formerly the MountainWest Venture Group). Over the years, a number of other important groups have been formed, including a local chapter of the Association for Corporate Growth and the Utah Information Technology Association, among others.
As an officer of the MountainWest Capital Network (MWCN), I want to use MWCN as an example of the benefits that come from networking within a networking organization of this sort.
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Jan21
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J im Sorenson, founder of a variety of entrepreneurial ventures, including Sorenson Capital, Sorenson Media and Sorenson Voice Relay Systems, is the founding sponsor of the University Venture Fund and was the dinner speaker at the University Private Equity Summit on Friday evening. Personally, I think it is best when the speaker is the most impressive person in the room, and that certainly applied at this event. Wealthy and professionally accomplished in his own right, Jim is the son of James L. Sorenson, #177 on the Forbes 400 List.
For me, the highlight of his presentation was the detailed description of the auction process used to sell Sorenson Communications recently.
First, he decided he wanted great representation. To get it, he screened a variety of investment banking firms to narrow the choice to three. Then he met and had presentations with each, two of which were large firms, the third being a boutique shop that specializes in cable television deals. Ultimately, he chose Lehman Brothers.
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The capital available to the smallest public companies is often much more expensive than venture capital or other capital available to private companies. The typical features of such rounds of capital include floating conversion features that allow investors to convert debt or equity into an infinite number of common shares. This can virtually assure the investor of recovering all of its money, but at the expense of all of the other investors--and managers. Small public financings also tend to feature more up front fees, often paid in equity--subtly but meaningfully increasing the cost of financing.
