NSS Ambassador Laura Kevghas of Mirus Capital Advisors will be one of the panelists.  We hope you can join us.

Wednesday, March 10, 2010

8:00 a.m. – Registration and Breakfast
8:30-10:00 a.m. – Program

Whether you are a buyer or seller, there are opportunities in the current economic climate to maximize your return on a merger, acquisition, or sale of a business. Our panel will review the current M&A market including a discussion of the deals getting done, opportunities for both buyers and sellers, and a review of how to successfully sell or buy a business.

Topics will include:
The Current M&A Market and Trends
The Credit Markets and their Relation to Valuation
Current Business Valuations and the Impact on Estate Planning Opportunities
How to Prepare for and Pursue a Transaction

University of Massachusetts Lowell
MIL Conference Room
Wannalancit Mills
600 Suffolk Street
Lowell, Massachusetts
Directions

RSVP
nutterevents@nutter.com or 617.439.2622

We are pleased to announce the first of four

CEO Seminars  |  Tues March 23, 2010

7:30am -9:00am, 75 Federal Street, Boston

(offices of Furman Gregory Deptula)

RSVP: Rudi Scheiber-Kurtz at 781-929-9125 or scheiberkurtz@nextstagesolutions.com

The “new” economy brings its own set of challenges to companies who want to grow or plan an exit.

In the first of 4 seminars for CEO’s in 2010, we will begin by focusing the discussion on various ways of balancing the risks in our businesses.

• How can I build out infrastructure and create a model that is both flexible and adaptable, one that can constrict and expand with minimum costs?
• What value can I bring to my business by outsourcing any non-core competency to keep agile and nimble?
• What are the next-step tools and solutions in how I can achieve desired growth in a recharged economy and preserve cash with a conservative budget?
• How do I finance growth in today’s economy?
• What innovative strategies can I adopt to increase value in my business that may not involve raising capital?

Join us for a 90-minute interactive dialogue and take back valuable insights from other fast growth CEO’s.  Learn tools, tips and trends to help you navigate in this new economy.

Attendance will be limited to allow more in-depth and interactive discussion. Future seminars will focus on specific topics such as financing, sales and marketing, legal, partnering, and exits.

Why you should attend:

• Network with other CEO’s and gain visibility to best practices in the marketplace today
• Develop new partnering strategies for growing your business
• Learn how to avoid pitfalls of outsourcing key aspects of your business
• Gain critical insights into key legal, financial, and human capital issues in 2010 that will impact your business

Location: 75 Federal Street, 9th Floor, Boston, MA at the offices of Furman Gregory Deptula

Time: 7:30am Continental Breakfast

Program: 7:45am – 9:00am

RSVP: Rudi Scheiber-Kurtz at 781-929-9125 or scheiberkurtz@nextstagesolutions.com

Sponsored by:

Next Stage Solutions recommends this seminar around financing in these economic difficult times.  It is led by Itamar Chalif, principal of Atlantic Capital Solutions in Middleboro, MA.

His announcement:

Due to the great success and overwhelming requests since my seminar earlier this month, I have decided to present my seminar again on Wednesday February 24, 2010.

It will be kept free one more time in order to allow anyone who wishes to learn about strategic planning and controlling their business’s financing to be able to attend, regardless of their circumstances.

This is an information session in a 2 hour seminar from 9:00 – 11:00 a.m.

9:00 – 9:20 doors open with coffee & networking

9:20 – 10:30 seminar

10:30 – 10:45 Questions & Answers

10:45 – 11:00 Networking

My seminar is called “What Every Small-Business Owner Should Know About Small-Business Financing,”  will take place at the Middleboro Holiday Inn Express, conveniently located immediately off of Route 495 at exit 6. The address is 43 Harding St Middleboro, MA 02346.

The seminar is geared toward the small-business owner and the professional who serves as a trusted adviser to businesses. Attendees will benefit from learning more about the different type of financing options that exist, their advantages and disadvantages, and how to evaluate a business’s financing strategy.  Topics will include:

·        Business Financing “Landmines” to avoid

·        Differences between consumer and business financing

·        Three vital elements to consider in a business transaction (from a financing point of view)

·        A comparison of financing options and how each may affect the survival/growth potential of a business

“Anyone who is considering financing or has had any questions about the best ways to finance business expansion or equipment should take advantage of this opportunity,” said Chalif, who has spoken before national organizations on this topic.

Atlantic Capital Solutions (ACS) provides specialized, one-to-one servicing in helping business owners and entrepreneurs attain financing. The company works with business owners, controllers, CFOs and other decision-makers, entrepreneurs, and equipment vendors.

ACS’s offerings include the following programs:

·        New and used equipment leasing/financingSmall Business Administration

·        (SBA) options

·        Non SBA solutions for start-up businesses

·        Commercial mortgages

·        Terminal Rental Adjustment Clause

·        (TRAC) leases

·        Lines of credit

·        Working capital loans

·        Business acquisitions

·        Factoring (accounts receivable funding)

Space is limited and interested parties must register by February 19^th.  To register, please do so by e-mail,  itamar@acsus.biz or for additional information call 1-877-ACSUS-14.

I look forward to seeing you there.

Itamar Chalif

Atlantic Capital Solutions

Last month the Wall Street Journal published an article For Rent: Chief Financial Officer by Raymond Flandez, commenting in how more and more firms are outsourcing this high level function of management. For businesses small and large, especially companies that want to grow, the finances do get more complex. He points out that many of these ‘Rent a CFOs’ are also Certified Public Accountants.

I agree wholeheartedly with Flandez’  assessment  that an outsourced interim or part-time CFO is a capital efficient way to access this expertise and an outsourced CFO can be more objective and give a reality check. I also agree that many of the CFOs are indeed CPAs and this is partially due to the Sarbanes-Oxley Act of 2002 (SOX)  that has driven businesses and their CEOs more to the compliance and technical side of finance enforcing the common belief that if you have a controller and an accountant your financial needs are covered.  That may apply to life style companies who do not intend to grow but simply run a sustainable business.

From this juncture, however, is where I begin to differ.  A company with expansion and growth in their forecast, the paradigm has to shift drastically from technical to strategic. In fact, not recognizing the importance of strategic finance and solely relying on your controller’s risk aversion, you may be holding your company back from that growth.  Here is why I think so.

For a fast growing company, the financial spectrum has to be broader and therefore more complex as pointed out by the author of the WSJ article.  You want to consider a broad based and strategic CFO, one that picks up where the CPA or controller leaves off.  The CFO is your business partner and brings a strategic organizational mind set to the discussion and understands the importance of mapping out the corporate strategy into multiple roadmaps.  Given uncertain economic times, this is more important than ever.  Finance for emerging businesses brings a complexity that is more than accounting and number crunching.

The CEO needs to fully understand the financial ramification and bottom line each decision triggers. SOX compliancy has driven us too far towards the tactical aspect of finance forgetting the importance of looking forward, checking your Financial Headlights.  The CFO plays an important role acting as conduit to growth and walking the fine line between the risk-averse controller and the visionary CEO.  Your future CFO needs to have average appetite for risk, not too little and not too much, understand how to translate the corporate strategy and be a true value creator and not a gatekeeper of growth.

Rudi Scheiber-Kurtz, CEO
Next Stage Solutions, Inc.

NSS has joined AIM as a corporate member this week.  In an earlier blog I wrote about the BuyMass.org website, the Massachusetts online business-to-business network.  AIM created this website along with the Commonwealth of Massachusetts.  It is all about creating jobs and bringing economic opportunity to Massachusetts.

We believe that NSS offers a unique value to emerging businesses of the Commonwealth with our CFO on Demand model.  Our CFO team is highly experienced not only in the arena of finance, but also in operations and management.  Today’s CFO needs to provide more than the governance piece of finance by bringing the organizational mind set to the table. We understand how to grow companies and hope to be of value to the other AIM members.

Rudi Scheiber-Kurtz, CEO
Next Stage Solutions, Inc.

What are your indicator factors as a sign of returning confidence in the economy? I posed this question to a few business colleagues in early summer.  Oscar Jazdowski of Silicon Valley Bank (Growth Companies Services) is looking for 2-3 consecutive months of flat unemployment.  Currently, unemployment is still going up, making it the highest in 25 years, but the Index of Leading Economic Indicators has shown growth each of the last 4 months.  So running a business, what should you be aware of and plan in the near future?

Laura Kevghas of Mirus Capital is beginning to see an uptick in the strategic buyers who have money in the bank and are beginning to consider acquisitions once again.  She states that strategics have seemingly had their wallets closed, but are now starting to consider making some acquisitions that fill a strategic hole or which will help grow their market share when business starts to turn around. Ms. Kevghas also points out to be on the alert if one strategic is interested in your business, there may be others as well; so it may be worthwhile to engage an investment banker to run a complete process.

Conservation of cash and strong management of your working capital is still a top priority.  Oscar Jazdowski recommends being ready for an upturn by having a pool of contract labor and more permanent hires that you can quickly engage.  Now is the time to work out several road maps or scenarios that will give you a competitive edge when the overall economy improves.

With this focus on cash management, you want to make sure you plan multiple scenarios over the next 6-12 months so that you can navigate optimally and be proactive.   You want to have these strategies mapped out financially to fully understand the ramifications of your future decisions. I call them your NSS Financial Headlights™.

Strengthen marketing and sales during this economic growth, albeit slow, and keep your business out in the market – visible and ready to respond, suggests Laura Kevghas.

In my opinion, it is also an opportune time to evaluate your exit strategy. Where do you want your company to be in 3-5 years?  Consider succession planning and optimize market value and consider this long term plan in your annual budgeting process.

Send us an email or call us at 617-449-7728 to discuss how we may help you build your business and give you  a competitive edge with our expertise in strategic finance.

Rudi Scheiber-Kurtz, CEO of Next Stage Solutions, Inc.

Do you know any fast-growing firms located in an inner city?  Are you a high growth inner city company?  Initiative for a Competitive Inner City ICIC is seeking nominations for its 2009 Inner City Capital Connections Program and 2010 Inner City 100 Program.

For more information and nomination forms, please go to www.icic.org/nominations or call Alex Rodrigues at 617. 297.3140

What Do Angels and VCs Ultimately Want?
If you are considering taking outside money to fund your company, it is in your interest to understand the goals of your investor. While many entrepreneurs understand the psychic gratification that angels get from helping the next generation of entrepreneurs, they may not understand the implications of capital that’s invested for the purpose of seeking high returns (angel and venture capital). These motivations can drive how long the entrepreneur is involved in the company, when to sell the company, how to prioritize the company budget, recruiting, which customers to pursue and on and on.

To understand the financial motivations and behaviors of angels and venture capitalists, let’s look at the ending they want and work our way back. Both angel and venture capital investors seek investment returns that are greater than what can be achieved by investing in the stock market, say the S&P 500. These investors place capital in and work hard with earlier stage, illiquid but hopefully high growth companies. Why? Because they expect that one or two out of a portfolio of 10 companies will generate high enough returns to pay for all those that don’t pan out, yielding an average return over investments that exceed the expected S&P return.

Returns are determined by the amount of money invested over the course of the company’s development (capital in), the money paid by the acquirer or the public markets (capital out) and the amount of time that has passed from investment to return. Let’s look at each of these in turn.

Capital In: Capital In is the total amount of capital the company will need over the years to achieve the revenue growth rate or other milestones that will justify the desired (or required) high exit valuation. But it’s more than just the total. Each slice of capital needs to accomplish some critical milestones that take the company to the Next Stage of valuation. Here’s an oversimplified example:

• Early Stage Financing- You self-funded the company to make a prototype, show to customers and you think you know who your “first, best” customers are. You need to generate revenues from a handful of customers to prove the market and the value proposition. To prove this, you might raise $500k from angels or an angel group.
• Once you’ve validated with some initial customers, you’d like to go after the rest of the customers in that market and perhaps an adjacent market. If they believe the company can grow rapidly, venture capitalists might be willing to invest $2-5M in a Series A financing to flesh out the business. Figure that VCs want to own ¼ to ½ of the equity, so this means the company needs to justify a pre-money valuation in the $3-8M range.
• Series B is to expand the business faster than organic cash flow can supply. Areas of expansion might include developing related products or markets, expanding internationally, or expanding sales through distribution. Series B might range between $7M to $20M or more depending on the industry and the opportunity.
• Series C can be to further expand the business beyond cash flow generated, or to create the scale of operations that can achieve profitability.
• Note: Rarely do companies step without faltering between each of these stages. Sometimes it takes a couple of rounds to accomplish each of these goals.

Capital Out: Several years after the initial investment, investors want to get all their capital back plus some compounded return in compensation for putting the initial capital at risk of 100% loss and being illiquid for several years. Even as angels and venture capitalists consider their initial investment, they are asking themselves, “Can this company generate 5-10x the original investment (after paying for investment bankers, motivating management and employees, paying the fund) over a 5-7 year period?” If the answer is no, then there’s no point making the initial investment.

What type of businesses are acquired in 5-7 years for 5-10 times the original investment? The short answer is companies with very fast growing revenues and/or companies whose revenues can be leveraged immensely by the acquirer’s distribution network. And recent transactions indicate a return to the “old way” of valuing companies; rapidly growing profits that deliver increased valuation to the acquirer’s net income.

Time: Finally, the same Capital In and Capital Out generate vastly different returns depending of the time between the investments and the final exit. In the late 1990’s the average time to exit was less than 3 years. The average time to exit in 2008 is 7 years. If an investor doubles her money in 3 years, that’s a compounded rate of 25%. If another investor doubles his money in 7 years, that’s a compounded rate of 10%. The graph below compares fund vintage to returns. Funds stared in 1995-1997 achieved extraordinarily high returns as their companies exited in the bubbly 1999-2000 stock market. Funds started in 1999-2000 have faced lower exit valuations and longer investment times, and vastly increased competition from many new funds; which yielded much lower returns.

Needless to say, venture firms today face huge issues ranging from the large number of companies funded and still alive from 1999-2000, to an out-of-reach IPO market, to an anemic acquisition market, to increased taxes on their long term gains. In fact, some venture capitalists say that the industry would be better off at half its current size.

Money Isn’t Everything

This post was meant to discuss the financial motivations of angels and venture capitalists. It’s important to understand their financial goals and therefore the implications to your company, the path forward and your role.

Both angels and venture capitalists bring much more to the table than money. They bring experience, contacts, perspective and hard work that are at least as valuable as the capital invested.

Lucinda Linde, CFO Consultant
Next Stage Solutions
June 2009