Raising capital to expand a company is difficult, time consuming and fraught with danger, as three entrepreneurs expressed at a Houston Technology Center seminar last week.
Kemal Farid, founder and CEO of oil and gas production software developer Merrick Systems Inc., said after meeting with venture capitalists, European and Middle Eastern investors, private equity firms and traditional banks, it ultimately went with Silicon Valley Bank, which helped it consolidate its $2 million in debt and extended it a $2 million credit line with which to make acquisitions.
"You have to be realistic," he advised. "Don't give too-high revenue curves. Set targets you can meet."
"Watch your cost of capital" before you take the check and comb through term sheet details with a team of advisers, Farid added.
Dan Parsley, founder of CEO of SalvageSale Inc., an online marketplace for salvage buyers and sellers, said the company was stuck last year when investors including Securitas Ventures, American Re and Merrill Lynch Ventures wanted out. Management wanted to grow the company but didn't have cash to make acquisitions.
So it hired Stifel Nicolaus to advise it on alternatives ("We paid $500,000 for an introduction," he quipped), and last spring sold a majority interest to private equity firm Spire Capital Partners. The firm not only invested in the company but also brought financial and development capabilities.
Parsley's advice: Hire a good lawyer and remember that terms with investment banks are negotiable.
David Ferdman, CEO of data center operator CyrusOne, wanted to keep working through its pipeline of projects but also needed capital to make acquisitions. So it also went with a private equity firm, Abry Partners in Boston, which bought the company last summer.
CyrusOne got advice from Signal Hill Capital Group LLC. The lesson he learned from the experience: "Put everything in the term sheet up front." - Claire Poole
