Dear Informer

DEAR INFORMER

Many paths can
lead to financing
success, owners say

By Beth Ewen

DEAR INFORMER: I?m wondering what the best combination of financing sources is for my business. What have other entrepreneurs done?

DEAR CAPITAL: The routes to financing a business are as varied as the businesses themselves, which can be heartening. After all, if there is no single way that works, that means multiple paths can lead to financing success.

The Informer learned from three entrepreneurs about their financing methods at a seminar late last year sponsored by the International Institute for Women Entrepreneurs at the College of St. Catherine in St. Paul. 

?I?ve had a little bit of every kind of financing,? says Laurie Brown, founder of Minneapolis-based Restore Products and Restore refill stations. She launched in 2001 with a $77,000 grant from the state of Minnesota, and matched the grant with her own funds.

Then an adviser said, “Call up people,? so she started doing so. She learned along the way that a particular kind of investor will be interested in each company.

?You have a sweet spot for your investor, and mine is a high-net-worth woman who wants to change the world,? Brown says. The faster you can figure out what kind of person likes your kind of company, the better, she believes.

Don?t overlook vendors and suppliers, whose success will grow if yours does, too.  ?My vendors have been a key source of financing,? she says.

Her first bridge loan was for $750,000 in 2003, from an investor from California ?who asked me for a tour of the Mall of America. Yet I had been lost at the HarMar Mall!? she says with a laugh.

A ?B? round of equity financing for $1.65 million capped off her efforts in July of 2006. She says future fundraising will be much easier because her company is no longer ahead of its time, now that environmentally friendly products and practices are taking center stage.

Oh, and the ever-popular friends, family and MasterCard played a role as well. She still has $80,000 of credit card debt in her name. ?My father has done some major bailing out,? she says.

?Compared to Laurie, I?ve had it easy,? says Lee Jones, former CEO of Inlet Medical. She had worked at Medtronic Inc. in venture investing. ?Inlet Medical was dead when I got there,? she says, joking that she decided she didn?t have anything to lose by taking the job.

?I was hired as an executive to turn it around and sell it. We raised $6.5 million, which by medical devices standards was small. I got a line of credit and we were profitable so I could get into a bank,? she says.

Finally, Jeanne Voigt, founder of MindWare, found her biggest challenge in funding a huge print run for her catalog. ?My company is a direct marketing company. We create brainy toys for kids and also distribute them.

?I married late,? Voigt says, ?He came to the marriage with a little more money than I had so I took some of his money and gave him 49 percent of the company.?  Her now ex-husband put in $200,000 over two years, she says.

It also took a while to get the business model right, but when she did so she was able to get a line of credit to fund the huge catalog print and postage expense, and to eventually put together her exit plan.

?We moved from this retail kiosk, which failed miserably,? to the direct mail model. ?The big expense in my business is the postage and printing to get out millions of catalogs.?

SEEKING ADVICE

DEAR INFORMER: What role can or should advisers play when you?re searching for capital?

DEAR ADVISEE: Laurie Brown of Restore Products credits a person whom she met at Springboard Enterprises, a resource organization in Washington, D.C., that helps connect women entrepreneurs with venture capitalists. 

?She talked me into taking this three-quarters of a million loan at 18 percent interest, and it collateralized my whole business, and all my patents pending,? Brown says. She feels it was good advice, but cautions entrepreneurs to trust their instincts as well.

?The key to using advisers is there comes a time when you?re no longer in sync and you have to let them go. That means being your own adviser, too.?

Lee Jones, formerly of Intet Medical, says getting the lingo down is crucial before talking with investors. ?I had a board chairman who helped me learn the terminology. As time went on I found groups like CEO Roundtable, as well as professionals like bankers and lawyers,? Jones says.

Jeanne Voigt of Mindware likes to bounce ideas off people who have different views from her. ?I?m a just-in-time person when it comes to seeking advice. My ex-husband was very risk-averse and that was a good counterpoint to me,? she says.

Voigt has sold 75 percent of her company. ?When I sold I went out and found a broker in my industry. I?d go to the annual conferences and there was always a session on how to sell your business, and the guy who led it, I went to him,? she says.

She also turned to her management team when considering different offers for the company. She asked them to rank their two favorite prospective buyers and their two least favorite.

MANAGING TIME

DEAR INFORMER: How long do these rounds of financing take, and how much time do you personally have to invest in them?

DEAR TIME: Lee Jones, formerly of Inlet Medical, says her problem was she had lots of small investors. ?The money I had to raise was painstaking. There were a lot of small investors and small funds. It takes just as much effort to raise $25,000 as it does to raise $1 million.

?It seemed like we were money-raising all the time until we reached our goal.? She said she got better at targeting whom she wanted to talk to.

Laurie Brown, Restore Products, says every investor has different levels of involvement, and demands different things form the business owner. ?My first investor, he wanted to sit across from me and see if he could trust me. I?ll never forget that.?