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Acquiring Shareholders

Acquiring Shareholders. In your dreams - Go it alone But In reality - you need help. The Norm. You want financing at minimum cost Financiers/investors want to maximize return Shareholders may want what you do Many variables involved that enable you to make a DEAL. Optimistic

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Acquiring Shareholders

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  1. Acquiring Shareholders • In your dreams - Go it alone • But • In reality - you need help

  2. The Norm • You want financing at minimum cost • Financiers/investors want to maximize return • Shareholders may want what you do • Many variables involved that enable you to make a DEAL

  3. Optimistic Single Minded Minimal perception of risk Long-term focus Wants to control Cautious/skeptical Multiple opportunities Realistically risk sensitive Short-term focus Wants to control Entrepreneurs/Investors

  4. Turn-ons for Investors • Solid evidence of customer acceptance • Evidence of focus • Proprietary position • Demonstrated appreciation of investor’s needs

  5. Turn-offs for Investors • Product/service infatuation • Projections deviating from industry standards • Unrealistic growth projections • Too great a need to customize

  6. To Make a Deal • A transaction/agreement between two or more groups or individuals

  7. Another Perspective • Distributing/apportioning

  8. To make a deal you must: • Understand the business exceptionally well • Your own needs • The needs of the financiers

  9. The Business • The market • The competition • Suppliers • The money you need • to buy • to operate • The risk involved

  10. Your needs • How much risk can you live with? • How much control do you need? • What kind of financial returns do you need? • What assets are you ready to put into it?

  11. Financier’s needs • Kind of return they desire? • Degree of risk they can live with? • How do their perceptions differ from yours? • Capacity/willingness to invest? • Timing on their return? • The form they expect that return to take? • How much control do they want?

  12. Risk/Return • Minimal risk, lower money cost • The higher the risk, the higher the money cost • Risk is in the eye of the beholder • Up to you to affect the perception of risk

  13. Sources of Funding • Private • Government • Venture Capital • Banks

  14. Private Sources • Friends, relatives, your own savings • Deal is dependent on your relationship

  15. Governments • Federal • State • Local

  16. Federal Government Financing • Largest single lender to business in the US • Rationale • Support of the economy • Politics • Changeable source

  17. Four Federal Agencies • Export/Import Bank • US Department of Agriculture • Maritime Administration • Small Business Administration (SBA)

  18. SBA • No longer the “lender of last resort” • Works in conjunction with banks • Types of programs available • 7 A loans - up to $750,000 • for small business unable to obtain credit elsewhere • 504 loans - $750,000 - fixed asset loans • Backed by debentures (ISBCG)

  19. State Government Programs • DCCA - Department of Commerce & Community Affairs • Illinois Development Finance Authority • Types of programs • Direct loans • Guarantee programs • Enhancement programs

  20. Local Governments • TIF districts • Tax rebates or forgiveness • Redevelopment loans • Others

  21. Staying Aware • Talk to your banker • Your chamber of commerce • SCORE • Community College - Business Development Centers • Consultants/brokers - beware

  22. Venture Capital

  23. Venture Capital Firms • Professional investors • Types • Independents • Subsidiaries of large houses • Most have to seek funds themselves so must “prove” themselves • Most demanding source of funds

  24. Typical Pattern for VC Financing • Expensive - they specialize in riskier ventures • Frequently take an ownership position • Grant freedom in early stages • BUT with success, they push you to go public • Then they cash out

  25. The Odds with VC Firms • Established VC firms get more than 9000 business plans a year • 15 companies - .17% are funded • To gain funding a typical start-up needs to have the potential to achieve a market capitalization of $1 Billion or more

  26. Banks • The one funder most can’t live without

  27. Money & Banking Basics • They buy money called deposits • They invest it in loans to businesses and individuals • Money is made on the margin • Highly regulated in this country

  28. Regulations • “Reasonable Risk” • “Speculation” is forbidden • Periodic examinations • Fair Lending Laws • Community Reinvestment Act - CRA

  29. Advantages of Banks • Good source of advice • Bank loans give you highest credit rating • Widest variety of loans & terms • Array of other business services • Once they loan you money they’ll support you.

  30. Disadvantages of Banks • Most conservative source of funds • They want lots of information - some personal • They can sometimes act like “owners”

  31. What to look for in a bank • Community/industry knowledge • Longevity • Size • Products and services available • Geography • Your comfort with your loan officer

  32. The Process • Business Development efforts • Loan Officers • Loan Committees • Officers • Board • Maintaining contact

  33. Summary • Finding financing is easier if you know the territory • Success evolves from matching needs and interests • And your willingness to make a deal that satisfies both them and you

  34. Allen Lane Case • Situation • Plas-Tek a good solid company • But there are concerns • Previous owner is dead • Plant manager is unhealthy • There are potential tax liabilities

  35. Recommendations? • Go for it • Bid $790,000 • Design contract to address risk • Tax contingencies • Life insurance, continued employment for plant manager

  36. Epilogue • Bid $790,000 cash at closing but negotiated • $250,000 cash • $100,000 a year for four years • $550,000 balloon at end of year 5 • Adjusted based on tax liability • Took a chance on the plant manager

  37. Lessons • Dealing with unknowns/risks • Deal making • Considering the needs of all concerned

  38. Steven Belkin Case • Situation • Charter tour business regulations relaxed • Growing demand for low cost travel • Belkin has experience in travel industry

  39. The Opportunity? • Market need? • Profit Potential? • Obstacles? • Growth opportunities?

  40. Business Concept? • How is he adding value for the customer? • If targeting large groups what’s the secret of success? • What resources does he require?

  41. What are his alternatives? • Abandon? • Go forward? • How? • Financing?

  42. Epilogue • “Skinnied” the deal to $100,000 • Raised that from friends & relatives, $5000 at a time ($1000 equity, $4000 debt) • Gave each a free trip worth $1500 • Did over $50 million business the next year

  43. Lessons • Example of “shoe string” startup • Necessity of financing to match the industry and business • Importance of “juggling” • Above all the importance of “the deal”

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