Littlebanc Blog

News & Tips for Entrepreneurs

August 9, 2012

Littlebanc Advisors Announces $1.3 Million Series B Financing for HiConversion, A Disruptive, Patented Conversion Rate Optimization Solution

Filed under: Littlebanc Company News — @ 10:26 am

Littlebanc Advisors, LLC today announced the completion of a $1.3 million Series B financing for HiConversion, a conversion rate optimization (CRO) solution allowing e-commerce merchants to convert a higher percentage of website visits into sales. A single institutional investor, LB Merchant HC-2, LLC, an affiliate of Littlebanc Advisors, made the investment. HiConversion is based in Boca Raton, Fla. Littlebanc Advisors acted as the sole placement agent and financial advisor.

HiConversion Logo

The $1.3 million financing will allow HiConversion to expand its sales and marketing operations to support the continued growth of e-Optimizer™ 2.0, the company’s most recent product launch. LB Merchant HC-2 will name an additional board member to HiConversion’s board of directors. To date, Littlebanc has completed 11 transactions for Florida companies. This financing marks $30 million in growth capital that Littlebanc and LB Merchant have raised and invested for Florida companies.

“Since the company’s first round of funding, HiConversion has continued to gain traction as a category leader in the conversion rate optimization space. This second capital raise will enable HiConversion to support its growth by expanding sales and marketing channels. We are pleased to announce that this is our eleventh transaction for a Florida company, and Littlebanc remains committed to funding high-quality, high-growth companies.”

– Michael Margolies, CEO, Littlebanc Advisors, LLC

About HiConversion

Founded in 2006, HiConversion is a disruptive, patented conversion rate optimization (CRO) solution that allows e-commerce retailers to convert a higher percentage of existing web traffic into online sales. Using statistical analysis and mathematical modeling, HiConversion allows e-tailers to quickly increase page conversion rates in real-time, and, as a result, increase revenues and decrease online marketing costs. HiConversion is offered as a pure SaaS service, delivering results that are dramatically faster, easier to use, and less expensive than available alternatives.

“We turned to Littlebanc for a second time because they understand the unique capital needs of smaller companies. Littlebanc’s management team was again a dedicated advisor throughout the capital raising process, and their high level of professionalism ensured that we could quickly meet our funding needs. This round of financing will allow HiConversion to accelerate its sales and marketing efforts so we can expand our current software offerings.”  

 – Dr. Zee Aganovic, CEO, HiConversion

For more information, visit www.hiconversion.com.

About LB Merchant HC-2, LLC

LB Merchant HC-2, LLC, an affiliate of Littlebanc Advisors, LLC, is a merchant bank that invests in small, high-quality growth companies. LB Merchant HC-2, LLC takes an active approach to its portfolio companies and assists these companies in realizing their potential.

About Littlebanc Advisors, LLC

Littlebanc Advisors, a merchant and investment banking firm, specializes in funding high-quality small to mid-market growth companies. Littlebanc differentiates itself by focusing on unstructured deals sold to fundamental growth-stock investment funds. With its long-established Wall Street relationships, Littlebanc matches client companies with partner-minded investors. This fundamental focus fosters a stable and long-term shareholder base, minimizes capital dilution and enables Littlebanc to complete transactions quickly. For more information, visit www.littlebanc.com.

Littlebanc Advisors LLC, securities offered through Wilmington Capital Securities LLC, Member FINRA/MSRB/SIPC.

July 12, 2012

Littlebanc Advisors Announces $2.7 Million Series A Financing for Adams Arms, Inc., a High-Growth Florida Company

Filed under: Littlebanc Company News — @ 11:26 am

Littlebanc Advisors, LLC, announced the completion of a $2.7 million Series A financing for Adams Arms, Inc., a high-growth company that develops and manufactures rifles and rifle products based on the company’s patented gas piston impingement system. Adams Arms is based in Palm Harbor, Fla. The single institutional investor, LB Merchant AA-1, LLC, is an affiliate of Littlebanc Advisors. Littlebanc Advisors acted as the sole placement agent and financial advisor.

The capital raise will enable Adams Arms to support increased demand from its distributors, dealers and OEM partners, including Brownells, Midway and Smith & Wesson. In addition, Littlebanc CEO Michael Margolies will take a seat on Adams Arms’ board of directors to provide guidance on the company’s continued growth. This transaction marks the seventh successful funding of a Florida company by Littlebanc Advisors.

“Adams Arms’ core technology has created a revolutionary rifle design that solves significant flaws associated with today’s firearms. The growing demand for Adams Arms’ products demonstrates that the company is poised to rapidly scale production and gain market share. We are pleased to be working with another high-quality Florida company and remain dedicated to helping Florida companies grow.”

– Michael Margolies, CEO, Littlebanc Advisors, LLC

About Adams Arms

Established in 2007, Adams Arms is a fast-growing manufacturer of proprietary firearm products that solve common issues associated with the millions of AR-15/M16 rifles used by the military, law enforcement and civilian gun enthusiasts. Adams Arms has developed a suite of products based on its patented inverted piston operating technology, including a line of Gas Piston Retrofit Kits, which provide significant rifle enhancements in terms of reliability, accuracy, maintenance and longevity. The company sells its products through a broad network of distributors, dealers and e-tailers, as well as on www.adamsarms.net.

“In the search for the right financial partner to provide the funding necessary to support our growth, it is clear we hit the target with Littlebanc Advisors. The ability that Littlebanc Advisors has shown to access some of the top investment and private equity groups allowed this capital raise to happen in the quick fashion that we required to support high demand. We are also excited as we believe they will add to the intellectual capital of our company as we grow the Adams Arms business.”

– Michael Froning, CEO, Adams Arms, Inc.

For more information, visit www.adamsarms.net.

About LB Merchant AA-1, LLC

LB Merchant AA-1, LLC, an affiliate of Littlebanc Advisors, LLC, is a merchant bank that invests in small, high-quality growth companies. LB Merchant AA-1, LLC, takes an active approach to its portfolio companies and assists these companies in realizing their potential.

About Littlebanc Advisors, LLC

Littlebanc Advisors, a merchant and investment banking firm, specializes in funding high-quality small to mid-market growth companies. Littlebanc differentiates itself by focusing on unstructured deals sold to fundamental growth-stock investment funds. With its long-established Wall Street relationships, Littlebanc matches client companies with partner-minded investors. This fundamental focus fosters a stable and long-term shareholder base, minimizes capital dilution and enables Littlebanc to complete transactions quickly. For more information, visit www.littlebanc.com.

Littlebanc Advisors LLC, securities offered through Wilmington Capital Securities LLC, Member FINRA/MSRB/SIPC.

April 30, 2012

Are you prepared to raise capital? (Part 2)

Filed under: Entrepreneurs & Executives,Raising Capital — @ 11:00 am

This is the last in a series of two blog posts on five key questions to answer as you prepare to raise capital. 

How will the capital infusion move your business forward? Investors want to know how their money will be used.   For example, simply stating marketing as a use of proceeds is not enough.  You need to be prepared to detail out the type of marketing initiatives, why these are the preferred initiatives and your plan to monitor their effectiveness.

  • Tip If you know you have a weakness in your current team, dedicate some of the funds to strengthening the team.  Investors generally appreciate entrepreneurs who realize their limitations in areas like operations or finance and in the end, feel more comfortable investing with someone who is able to identify and acknowledge areas where they need help.

What are the primary risk factors facing your opportunity? Risks come in all shapes and sizes.  You likely will have more control over some risk factors, and less control over others.  They key is to understand all the risks that you face (execution risk, regulatory risk, competitive risk, etc.) and have well thought out plans on what you intend to do to mitigate each risk.

  • Tip Most business owners are adept at talking about the “upside”, however just as critical is demonstrating your knowledge and plans to address the downside.  Potential capital partners will ask questions about risk factors.  Preparing to address these questions upfront will improve your chances of obtaining capital.    

What are you looking for in a capital partner?  There are various types of capital and understanding what you are looking for in a capital partner is an important part of the process.  Although your Investment Banking partner will play a key role in this process, it is important for you to understand what type of capital and capital partner best fits your future business needs.

  • Tip Do your homework before talking with prospective investor sources.  Look to see if they have a website and review what types of deals they have invested in previously.  Search the individuals you will be talking with on sites like LinkedIn to see if there are common contacts or relationships you may have with them.

 

The information contained in this blog post is intended for informational purposes only. While the information in this blog post has been obtained from sources we believe to be reliable, Littlebanc Advisors, LLC (“Littlebanc”), securities offered through Wilmington Capital Securities LLC, Member FINRA/MSRB/SIPC (“Wilmington”), makes no claim or guarantee as to its accuracy and completeness. Opinions expressed herein are subject to change without notice. The information contained in this blog post does not necessarily represent the view of Littlebanc and/or Wilmington or their respective employees. We make absolutely no recommendations to buy or sell any security in any blog post.

April 23, 2012

Are you prepared to raise capital? (Part 1)

Filed under: Entrepreneurs & Executives,Raising Capital — @ 11:00 am

This is the first in a series of two blog posts regarding five key questions to consider as you prepare to raise capital.

Often great ideas or proven concepts fail to attract quality capital partners purely based on the message delivery or lack of preparation.  If an investor has to work too hard in order to understand how your product or service answers five key questions, they often will just move on to the next deal.  You have spent all of this time, sweat and resources to build your “mouse trap,” now it is time to prepare to sell your story.

What problem do you solve and how does it differ from or improve what is currently being done? What is the market need and how does your product or service fill that need. Make certain you fully understand the competitive landscape and can clearly articulate why what you do is better than current (and future) options.  A good Investment Banking firm will get you in front of the “right” capital partners, partners who know your space and can add value to your future plans.  You need to know the space better than the potential investor.

  • Tip If your product is regulated, like a medical device product, search the FDA website for recent filings.  Often the competitive landscape encompasses products that have not yet been commercialized.

What is your revenue model (how do you make money)?  Answering this question goes beyond a simple we will charge customers “this” and it will cost us “that.”  You need to understand and be able to articulate such things as what does it  cost you to acquire new customers, what is each customer worth and what is the value proposition for the customer.  If growth or scale can significantly improve your revenue model, you have an advantage that others vying for the same capital may not have.  Prepare a financial model which captures how profitability improves with scale.  Investors will want to you to be able to talk in terms of “Once we reach this threshold (a certain level of revenue or certain number of customers, etc), each incremental dollar will drop .X dollars to the bottom line,” as an example.

  • Tip Clearly articulating your revenue model and related projections is critical to securing capital.  If this is not your strong suit, make the investment to get the appropriate financial resources to assist with these models.   
The information contained in this blog post is intended for informational purposes only. While the information in this blog post has been obtained from sources we believe to be reliable, Littlebanc Advisors, LLC (“Littlebanc”), securities offered through Wilmington Capital Securities LLC, Member FINRA/MSRB/SIPC (“Wilmington”), makes no claim or guarantee as to its accuracy and completeness. Opinions expressed herein are subject to change without notice. The information contained in this blog post does not necessarily represent the view of Littlebanc and/or Wilmington or their respective employees. We make absolutely no recommendations to buy or sell any security in any blog post.

November 10, 2011

Facing Failure (Part 2): 5 Key Considerations

Filed under: Entrepreneurs & Executives,Small Business Tips — @ 10:00 am

This is a guest blog post from Robert C. White, Jr., Esq. – Equity Shareholder, Gunster. It is the last in a series of two posts that consider facing failure.

The information contained in this blog post is based on general principles of law and is intended for informational purposes only. I make no claim as to the comprehensiveness or accuracy of any of this information. None of this information should be considered as legal advice, and this blog post is not offered for the purpose of providing legal advice to any party. The information contained in this blog post represents my own personal views only, and does not necessarily represent the views of my law firm or any other lawyer in my law firm. My provision of the information in this blog post does not create an attorney/client or any other relationship between me or my law firm and the readers of this blog post or any other party. All readers of this blog post should consult their own legal counsel and other advisors before taking any actions or making any decisions based on any aspect of the information contained in this blog post. I am not certified by the Florida Bar as a “specialist” or “expert” in any area.

I’m going to list some of the primary causes of failure that I’ve encountered in my travels. This is by no means an exhaustive list, but it hits the high points. Here are five items to consider (no particular order of importance):

  1. We’re Not Changing – the Market is Wrong. This is a very common situation. You’ve got a great business model and you’ve spent a lot of money and enormous amounts of time deciding how to develop your business and attack your markets. Why change now? I understand this, but you need to be keenly aware of what’s going on and adjust your model accordingly. I’m definitely not saying to follow the crowd – resisting that impulse is the heart and soul of innovation and entrepreneurship. The overall economy and the markets in which you are working are very powerful external forces, however, and you clearly need to keep on top of them and evaluate whether you need to change or adjust your model.
  2. Who’s the Boss? This is often a difficult topic in a growing business, but it’s a common source of serious problems. The problem here is that in many entrepreneurial situations there is no clear cut decision making process. Sometimes you don’t need one in the very early stages because every decision is a consensus (thought this never lasts long). This can be further complicated because in many situations people each bring different skill sets or assets to the new business (e.g., technology, business expertise, money). In many cases none of these people may feel comfortable stepping out of their particular area to exert control over other peoples’ areas. You need a very clear decision making process, and you need to have someone in charge. This is not to say that you must have a dictator with absolute power – the decision making power should normally be subject to some checks and balances.  It’s critical, however, that a decision making process exists and that the power that is given to each person is clear and well documented. The best time to do this is normally very early in the business entity’s life cycle. In these early stages people are much more likely to have a consistent idea of the dynamics of the company and the contributions of each individual, and they are much more likely to agree on allocations of decision making power and the value of an individual’s contributions. It’s amazing how quickly a person’s perception of their value to the business entity can change, especially when money is involved. Consider getting a clear and well-documented decision making process in place as early as possible.
  3. Who Owns What? It’s amazing how many times this very crucial subject is neglected: People quit their jobs and put all of their savings and time into their new company, but they don’t know how much of it they own.  This is a mistake that can lead to serious and expensive litigation.  Sometimes people don’t think they need to deal with this subject because they have longstanding relationships with the other participants and they believe everyone will “do the right thing” when it matters. Unfortunately, my experience says that this doesn’t always work. To protect the interests of each participant in a business entity, you need to determine up front who owns what and what rights and obligations they have relative to this ownership. Get agreement from all participants up front, and document these items very well to avoid future controversies. Clearly define if anyone has any rights to acquire additional ownership in the future and the requirements for such additional ownership. Get agreements in place that govern the rights and obligations of each participant. As discussed above, these items should be done very early in the business entity’s life cycle since this will be when the participants are most likely to be in agreement. If there is a disagreement or controversy, it is also much better to either resolve it up front or deal with it as necessary before the business entity has spent much money or built much value.
  4. How Did We Spend So Much Money? Running out of money may be unavoidable, but you should at least anticipate that it can happen and plan for it. This is especially important in the current environment as any kind of financing for early stage companies has become extremely hard to get. Bank financing for most early stage companies is very difficult or impossible to obtain right now, and private equity and venture capital financing is not much better. Even angel financing has been very difficult to obtain for many of the companies that I see. I don’t believe that financing an early stage company is ever easy (even in good times), but it has been easier in the past than it is now. In any case this means that there is an even smaller margin of error in managing your company’s cash.  Stay on top of your company’s short and long-term cash requirements at all times, and develop as many feasible contingency plans as you can.
  5. No One Told Me We Would Have To Sell This Stuff. This problem can arise anywhere, but it is often seen in technology companies. The principals are sometimes so smart and so technically oriented that they either refuse to focus on the mundane concepts of marketing, branding and sales or they are just not aware that a company eventually has to sell a product or service to survive. This concept cuts across all industries and spaces – it doesn’t matter if your company sells shoes, stocks or genetic mapping software, at some point the company has to sell something. This doesn’t mean that you personally have to do it, as some of us are terrible at sales and many of us don’t have the requisite skills anyway. If this is your situation, acknowledge it and hire the right people to manage and develop your marketing, branding and sales functions. I would do this early as it’s vital and it can be a time consuming process.

Thank you to Robert C. White for providing the information in this blog post. Connect with him on Facebook, Twitter, and LinkedIn.

Bob is a member of Gunster’s Technology and Entrepreneurial Companies Practice Group, its Corporate Practice Group and its Securities and Corporate Governance Practice Group. He serves as the head of the Venture Capital and Private Equity Committee of the Firm’s Securities and Corporate Governance Practice Group. He represents clients in many business segments with an emphasis on technology, innovation and entrepreneurial situations. His regular practice areas include corporate strategic counseling, technology law, venture capital and private equity law, mergers and acquisitions, corporate finance law, corporate governance and general business, corporate and financial law matters. He regularly counsels business entities, entrepreneurs and executives in these areas.

October 11, 2011

Littlebanc Advisors Raises $1.73 Million in Equity Financing for Divine Skin, Inc., a High-Growth Biotech Developer in Florida

Filed under: Littlebanc Company News — @ 10:46 am

BOCA RATON, Fla., Oct. 5, 2011 (GLOBE NEWSWIRE) — Littlebanc Advisors, LLC, Boca Raton, Fla., today announced Divine Skin Laboratories Logothe completion of a $1.73 million capital raise for Divine Skin, Inc. (OTCBB:DSKX), a high-growth company that develops, manufactures and distributes personal-care products that address hair loss, skin care and aging. The company is based in Miami Beach. The round was funded by both private and institutional investors. Littlebanc acted as the sole placement agent and financial advisor.

The $1.73 million capital raise will enable Divine Skin to continue to support its impressive growth and expand its growing base of large domestic and international distributors. Divine Skin’s proven products and increasing brand recognition have led to high demand from online retailers, specialty salons and upscale department stores like Neiman Marcus and Bergdorf Goodman in the United States, Saks Fifth Avenue in Mexico, and Harvey Nichols in the United Kingdom.

“Divine Skin’s high-quality and proprietary products have allowed the company to achieve significant revenue growth since inception. This round of financing will allow Divine Skin to continue acquiring market share. We are very pleased to be working with another high-growth Florida company.”

– Michael Margolies, CEO, Littlebanc Advisors, LLC

About Divine Skin

Divine Skin, Inc. (OTCBB:DSKX) develops, markets and distributes personal care products through a network of specialty and online retailers, wholesalers, salons and medical offices in more than 20 countries.  Divine Skin’s flagship brand, DS Laboratories, offers high-performance topical treatments for men and women to restore hair growth, suppress unwanted hair and reduce the appearance of wrinkles. Other brands include Sigma Skin, upscale men’s products; Polaris Research, physicians’ products; Pure Guild, an organic line; and NutraOrigin, a line of nutritional supplements.

“Littlebanc Advisors works with many of the most respected hedge funds and other financial institutions in business today — investors who expect exponential growth from the companies they fund. I take Littlebanc’s involvement as a huge endorsement of what we are achieving at Divine Skin.”

 – Daniel Khesin, CEO, Divine Skin, Inc.

For more information, please visit www.dslaboratories.com.

About Littlebanc Advisors, LLC

Littlebanc Advisors, a merchant and investment banking firm, specializes in funding high-quality small to mid-market growth companies. Littlebanc differentiates itself by focusing on unstructured deals sold to fundamental growth-stock investment funds. With its long-established Wall Street relationships, Littlebanc matches client companies with partner-minded investors. This fundamental focus fosters a stable and long-term shareholder base, minimizes capital dilution and enables Littlebanc to complete transactions quickly. For more information, please visit www.littlebanc.com.

Littlebanc Advisors LLC, securities offered through Wilmington Capital Securities LLC, Member FINRA/MSRB/SIPC.

September 20, 2011

Facing Failure (Part 1): The Unavoidable Consequence

This is a guest blog post from Robert C. White, Jr., Esq. – Equity Shareholder, Gunster. It is the first in a series of two posts that consider facing failure.

The information contained in this blog post is based on general principles of law and is intended for informational purposes only. I make no claim as to the comprehensiveness or accuracy of any of this information. None of this information should be considered as legal advice, and this blog post is not offered for the purpose of providing legal advice to any party. The information contained in this blog post represents my own personal views only, and does not necessarily represent the views of my law firm or any other lawyer in my law firm. My provision of the information in this blog post does not create an attorney/client or any other relationship between me or my law firm and the readers of this blog post or any other party. All readers of this blog post should consult their own legal counsel and other advisors before taking any actions or making any decisions based on any aspect of the information contained in this blog post. I am not certified by the Florida Bar as a “specialist” or “expert” in any area.

Facing Failure: The Unavoidable ConsequenceI’m going to jump right in and hit a very sensitive and unpopular subject: Failure. No one wants to think or talk about it, especially in the early stages of developing a business. I firmly believe, however, that startup businesses need to contemplate possible failure right from the start and learn from their own experiences and the experiences of others. Many times these lessons can help an entrepreneur avoid or mitigate failure in his or her current situation.

Failure: The Unavoidable Consequence

It’s somewhat of an unpopular view these days, but a certain percentage of business failures are an unavoidable consequence of entrepreneurship and innovation. You just can’t work on the bleeding edge of new business models and technological innovation without some things not working out. The incredible rate of change that faces most entrepreneurial and early stage technology businesses is an extreme challenge, and even a top-notch business plan can unravel very quickly due to rapid changes in external circumstances. In many early stage situations you hear someone at some point say “failure is not an option.” Great sentiment, but unfortunately not always true. Failure is always an option, but you can do a lot of things to avoid it.

It’s critical for entrepreneurs and innovators to realize that failing does not permanently terminate your chances of success in another venture. Rest assured that any venture capital or private equity firm, and any angel investor with any experience at all, will anticipate and expect a certain number of failures in the situations that they evaluate. In fact, in some cities with well-developed entrepreneurial or early stage business cultures, a “safety net” of some kind (for example, large companies with job possibilities) exists to encourage entrepreneurs to continue to innovate despite the possibility of failure. This is not to say that failure does not have significant negative consequences, but a certain level of failure is clearly contemplated in most entrepreneurial situations.

How to Manage Failure

All that being said, it is critical for entrepreneurs to do everything in their power to avoid failure. Failure costs money, and it has an opportunity cost as the entrepreneur’s time (which could have been spent productively on something else) may be wasted. Failure also has extremely unpleasant psychological effects, and may chase good entrepreneurs out of the early stage business arena. Finally, it’s an obvious conclusion, but having too many failures can put you out of the game for good.

The key here is to study situations in which failures have occurred and learn hard lessons from them. Some of our most successful entrepreneurs have several failures in their past. Study the facts of these situations and apply them to your business situation – did they encounter similar circumstances and problems? How did they try to resolve them? Most importantly, what went wrong? Why did they fail and can I learn something from their actions that will prevent me from failing?

Thank you to Robert C. White for providing the information in this blog post. Connect with him on Facebook, Twitter, and LinkedIn. Check back later for part two of this blog post about facing failure.

Bob is a member of Gunster’s Technology and Entrepreneurial Companies Practice Group, its Corporate Practice Group and its Securities and Corporate Governance Practice Group. He serves as the head of the Venture Capital and Private Equity Committee of the Firm’s Securities and Corporate Governance Practice Group. He represents clients in many business segments with an emphasis on technology, innovation and entrepreneurial situations. His regular practice areas include corporate strategic counseling, technology law, venture capital and private equity law, mergers and acquisitions, corporate finance law, corporate governance and general business, corporate and financial law matters. He regularly counsels business entities, entrepreneurs and executives in these areas.

September 12, 2011

3 Tips for Your Business Plan Financial Projections

Financial projections are the backbone of a business plan—they support the claims made throughout the business plan, and they show the strength of the business. Financial projections are also the most complex part of a business plan. If you’re looking to raise growth capital, investors will analyze your projected financial statements alongside the rest of the business plan to determine the viability of your company—and to determine how much money they can potentially take out of your business.

Typically, a business plan should include balance sheets, income statements, and cash flow statements for up to 5 years of projections. A general rule of thumb is that the upcoming year should be broken down by month, and the second year should be broken down by quarter. Years three and beyond can be annual statements, depending on how far out your projections go. Here are three tips to consider as you build your financial forecast:

Be realistic. While all potential investors would jump at the opportunity to invest in the next Facebook, most businesses rarely see hockey-stick growth. Investors who see unrealistic growth quickly dismiss the plan. Even though projections are essentially educated guesses, you’ll establish credibility if you use numbers supported by realistic assumptions. For example, you know your current cost of goods sold and employee expenses. You can realistically estimate how these expenses will grow based on your projections for sales and new hires. Be sure to include a summary of your assumptions that explains your reasoning.

Keep it simple. Business plans should only include financial projections for a single scenario: the realistic, likely outcome. Showing multiple scenarios, like the break-even outcome or worst-case scenario, may unintentionally indicate to investors that you do not fully believe in your likely outcome. Investors will more seriously consider your company if you show sound reasoning for your financial projections.

Use the projections. Many times, financial forecasts are carefully crafted, presented to investors, and then tossed aside. If you spent time and effort crafting realistic projections, your executive team can use the numbers as a benchmark. Set time aside each quarter to compare the financial projections to your actual figures. Are you under or over your original projections? Why are the figures different? An analytical approach to comparing your forecasts with actuals will let you identify potential problem areas and make changes as necessary.

The information contained in this blog post is intended for informational purposes only. While the information in this blog post has been obtained from sources we believe to be reliable, Littlebanc Advisors, LLC (“Littlebanc”), securities offered through Wilmington Capital Securities LLC, Member FINRA/MSRB/SIPC (“Wilmington”), makes no claim or guarantee as to its accuracy and completeness. Opinions expressed herein are subject to change without notice. The information contained in this blog post does not necessarily represent the view of Littlebanc and/or Wilmington or their respective employees. We make absolutely no recommendations to buy or sell any security in any blog post.

August 24, 2011

Financing Your Early Stage Company

This is a guest blog post from Robert C. White, Jr., Esq. – Equity Shareholder, Gunster.

The information contained in this blog post is based on general principles of law and is intended for informational purposes only. I make no claim as to the comprehensiveness or accuracy of any of this information. None of this information should be considered as legal advice, and this blog post is not offered for the purpose of providing legal advice to any party. The information contained in this blog post represents my own personal views only, and does not necessarily represent the views of my law firm or any other lawyer in my law firm. My provision of the information in this blog post does not create an attorney/client or any other relationship between me or my law firm and the readers of this blog post or any other party. All readers of this blog post should consult their own legal counsel and other advisors before taking any actions or making any decisions based on any aspect of the information contained in this blog post. I am not certified by the Florida Bar as a “specialist” or “expert” in any area.

Financing is often the most important focus for an early stage company. This is usually not healthy, as it can distract the entrepreneur from the key strategic and tactical issues that he or she is facing, but it’s understandable since running out of money normally means game over. To help you get on top of this situation and alleviate some stress, I’m providing several items that may be helpful to early stage companies in the financing context.

An entrepreneur should first consider how much financing is required and what the company’s valuation will be. These are complicated factors with critical ramifications. Take too much money now at a low valuation and you sacrifice a percentage of equity ownership in your company. Take too little and you risk running out of money.  This is further complicated by current harsh economic conditions—there is a real risk that money may not be available on acceptable terms or at all when you need it.  Carefully balance your short- and long-term cash needs with your strategic and tactical plans (including all contingency plans) and the projected availability of financing for your company.

Early Stage Valuations: Seek an Outside Perspective

Valuation of an early stage company in an early financing round is a critical component as it will significantly affect the size of your equity interest both now and in the future. These valuations are difficult, however, as many traditional valuation metrics cannot be fully utilized with early stage companies. You need to get good professional advice in these situations.  A trusted outside accountant is often a good source for early stage valuations. Remember that entrepreneurs sometimes develop unrealistic valuation expectations.  Get objective outside advice on valuation from trusted sources and listen to it.  One key item: Always be aware of your equity ownership in the company and how it could change based on all applicable circumstances (for example, additional financing at a low valuation, exercise of options and warrants and any anti-dilution rights granted to other investors).

Don’t ever assume that adequate financing will be available just because you’ve got a great idea or business model.  In my experience financing has never been easy to obtain for an early stage company – it’s definitely been easier than it is today, but I’ve never known it to be really easy. The other thing to remember here is that even if financing is available, the terms of the financing are likely to be egregious if you wait until you’re desperate and have no bargaining power.

Sources of Early Stage Financing

 

Financing for early stage companies normally involves a combination of loans from shareholders and other parties and various types of equity financing. Most of these companies will not qualify for bank financing at this stage.  If shareholders contribute equity capital, it is critical to document the percentages of equity that they receive.  It is also quite common for professional investors to require shareholders and principals to convert prior loans to equity, so be prepared for this.

The company may then do one or more rounds of “friends and family” financing, which involve funds received from family members and preexisting friendly relationships. This type of financing often seems attractive because it comes from people who you know and feel comfortable with, but it can have a very negative downside if things go wrong.

As your company progresses, you may encounter opportunities for professional financing from sources such as angel investors, venture capital firms and private equity firms.  Your company may also have access to strategic financing from another industry participant or a party such as a vendor or customer. All of these may be good sources of financing, but you must be extremely cautious here because of the sophisticated and professional natures of these parties. They are generally smart and dispassionate about their investments.

These financing sources will attempt to impose very strict and tough terms and conditions in their transactions, and you may not have the bargaining power to avoid these terms and conditions.  It’s imperative, however, that you understand what you’re getting into and what your obligations will be, as well as the consequences of not being able to comply with such terms and conditions, some of which could be extremely negative for your company and you. On the positive side, many “smart money” financing sources can add considerable value to your company beyond just their financial investment.

Document All Terms of a Deal

It is always essential that you clearly and correctly document all of the terms and conditions of any financing. Don’t ever leave any term to be construed later, and don’t depend on friendships and relationships here. People and their perceptions and situations always change (sometimes quickly and radically), especially when money is involved.

Remember that Federal and state securities laws potentially impact every financing transaction, regardless of how small and informal.  You need to get proper legal advice from a qualified practitioner in this area. These laws can impose substantial penalties and liability on your company and its officers and directors individually.

The financing process can be complex, frustrating and painful, but it is a fact of life for most companies. Use the simple items contained in this blog post as broad principles to guide you through the process, and use your advisors for specific advice here. The end result of a successful financing transaction can be extremely rewarding and gratifying for your company.

Thank you to Robert C. White for providing the information in this blog post. Connect with him on Facebook, Twitter, and LinkedIn.

Bob is a member of Gunster’s Technology and Entrepreneurial Companies Practice Group, its Corporate Practice Group and its Securities and Corporate Governance Practice Group. He serves as the head of the Venture Capital and Private Equity Committee of the Firm’s Securities and Corporate Governance Practice Group. He represents clients in many business segments with an emphasis on technology, innovation and entrepreneurial situations. His regular practice areas include corporate strategic counseling, technology law, venture capital and private equity law, mergers and acquisitions, corporate finance law, corporate governance and general business, corporate and financial law matters. He regularly counsels business entities, entrepreneurs and executives in these areas.

August 17, 2011

5 Tips to Get Your Small Business the Press You Want

Filed under: Small Business Tips — @ 2:00 pm

5 Tips to Get Your Business the Press You wantGetting featured in the press is a goal for nearly every small business. A press blurb—whether it’s a newspaper, blog, or magazine—establishes credibility and raises awareness. As you pursue press coverage for your company, keep this in mind: Every publication is different. Having a valuable story is crucial, but you’re not going to hit a home run with every writer. Sometimes you’ll hit at just the right moment of relevance and timeliness, but the key is to keep on going. If you build a valuable business, you’ll build a valuable story. Here are five tips to get you going:

  1. Start local. Building a loyal local following means finding dedicated customers. Like David Mercer suggests in this Technorati post, focusing on your local community builds credibility and a strong network. If you can offer a good story (Have you created jobs in your city? What problems do you solve for your customers?), local and regional reporters can provide you with exposure. Readers are more likely to respond and engage with you as a business knowing that you’re local. Furthermore, local press might be the best way to start building a satisfied customer base and word-of-mouth buzz.
  2. Know your target. “Read and understand the newspaper or other publication to which you are pitching the story,” says Margie Manning, senior staff writer at Tampa Bay Business Journal. Get to know their beats and angles they frequently cover. Check out their websites, blogs, Twitter feeds, and Facebook pages to understand how they interact with story sources and readers. Is there a particular writer you want to get in touch with? Follow their stories and pay attention to their writing style so you can personalize your pitch. Take a cue from Jennifer Wang, senior staff writer at Entrepreneur Magazine: “Just because I’m on the masthead, if my byline is rarely by a particular type of story, you’re likely wasting your time trying to contact me for that kind of story.” A general business editor may not be interested in the new gadget you’re selling, but the technology writer who covers product releases certainly would be. Insider tip: If you’re aiming for a business angle, including numbers—revenue, products sold—is imperative to your pitch.
  3. Position yourself as an expert.  “[Inc. Magazine] is about entrepreneurs and start-ups, so I’m looking for experts that have good service-orientated angles for our readers,” says Burt Helm, a senior writer for Inc. Magazine, in this journalist tip. “I want people that can provide advice and solutions for things like how to set pricing and go after venture capital.” By positioning yourself as an expert—say, on a certain type of software or a particular marketing strategy—you’re offering yourself as a valuable resource for writers. Specific companies can be difficult to feature in stories because of a dozen reasons (timeliness, deadlines, editorial preferences, etc.), but writers often seek quotes from experts who offer relevant insight for stories. Bonus: You’ll develop a relationship with the publication, and readers will associate your name with authority on the subject.
  4. Establish a relationship. “Nothing—and I mean nothing—is  better than having an established relationship or a referral through someone I’ve already talked to,” says Jennifer. One way to jump start this connection is an introduction to a press contact via colleagues or friends with an established relationship. Another is to make yourself known to the writer. Contribute thoughtful comments to their online stories. Pass along industry tips you think would work in their publication, even if they’re not about your company. Introduce yourself at a networking event. Once you start developing a genuine relationship, rather than constantly pitching your company, publications might be more willing to listen.
  5. Offer something in return. Both print and online editors and writers are slammed with unsolicited pitches and press releases. They all take a similar approach: You should write about my company because of Reason A and Reason B. Pitches essentially ask the writer to do something for the company, but what does the writer get in return? Yes, their job is to cover news, but one way to make yourself or your company stand out is to position your pitch differently, such as approaching it from a “How can we help each other?” angle, suggests Jennifer. Are you offering information that is honestly a good fit for the magazine? Can you put the writer in touch with a leading industry expert who would be a great source for an upcoming article? Another insider tip from Margie: “Offer something unique, something that hasn’t been written about elsewhere.” Think about how you can offer exclusive, timely information to the publication.
Older Posts »