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
Entrepreneurs/Investors
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
Turn-ons for Investors
Solid evidence of customer acceptance
Evidence of focus
Proprietary position
Demonstrated appreciation of investor’s
needs
Turn-offs for Investors
Product/service infatuation
Projections deviating from industry
standards
Unrealistic growth projections
Too great a need to customize
To Make a Deal
A transaction/agreement between two or
more groups or individuals
Another Perspective
Distributing/apportioning
To make a deal you must:
Understand the business exceptionally well
Your own needs
The needs of the financiers
The Business
The market
The competition
Suppliers
The money you need
to buy
 to operate

The risk involved
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?
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?
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
Sources of Funding
Private
Government
Venture Capital
Banks
Private Sources
Friends, relatives, your own savings
Deal is dependent on your relationship
Governments
Federal
State
Local
Federal Government Financing
Largest single lender to business in the US
Rationale
Support of the economy
 Politics

Changeable source
Four Federal Agencies
Export/Import Bank
US Department of Agriculture
Maritime Administration
Small Business Administration (SBA)
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)
State Government Programs
DCCA - Department of Commerce &
Community Affairs
Illinois Development Finance Authority
Types of programs
Direct loans
 Guarantee programs
 Enhancement programs

Local Governments
TIF districts
Tax rebates or forgiveness
Redevelopment loans
Others
Staying Aware
Talk to your banker
Your chamber of commerce
SCORE
Community College - Business
Development Centers
Consultants/brokers - beware
Venture Capital
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
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
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
Banks
The one funder most can’t live without
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
Regulations
“Reasonable Risk”

“Speculation” is forbidden
Periodic examinations
Fair Lending Laws
Community Reinvestment Act - CRA
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.
Disadvantages of Banks
Most conservative source of funds
They want lots of information - some
personal
They can sometimes act like “owners”
What to look for in a bank
Community/industry knowledge
Longevity
Size
Products and services available
Geography
Your comfort with your loan officer
The Process
Business Development efforts
Loan Officers
Loan Committees
Officers
 Board

Maintaining contact
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
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

Recommendations?
Go for it

Bid $790,000
Design contract to address risk
Tax contingencies
 Life insurance, continued employment for plant
manager

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
Lessons
Dealing with unknowns/risks
Deal making

Considering the needs of all concerned
Steven Belkin Case
Situation
Charter tour business regulations relaxed
 Growing demand for low cost travel
 Belkin has experience in travel industry

The Opportunity?
Market need?
Profit Potential?
Obstacles?
Growth opportunities?
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?
What are his alternatives?
Abandon?
Go forward?

How?
Financing?
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
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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equity - Management Class