Cash was one of the last things that his company was looking for from private equity

Selling a company used to be the only choice for a business owner. Unfortunately. this myopic view still lingers on even though there are many more options for those founders wanting to get some money for their hard work. Companies may consider taking on a private equity even if they don't need the money, simply as a way of making the transition from a private to a public company. 
Other companies, like Bermingham Construction, had a balance sheet ill suited for the public market because it was lumpy due to large contracts. The public market just would not bear the irregular cash infusions. Their option was not the public markets but to take on private equity partners.
A private equity partner can generally help companies in a number of ways, including:

• Upgrading the board of directors with seasoned industry professionals
• Forcing a strategy process and financial reporting on a more frequent basis
• Recruiting senior management, if necessary
• Implementing more sophisticated systems and financial controls
• Introducing entrepreneurs to investment bankers or potential buyers in preparation for an eventual IPO or sale

The Facebook story is well known to the point of exhaustion but it worthwhile to note how quickly Zuckerman got involved with private equity. Not just any private equity either - the best.

Another case study that reached the media was told by David Kalt, CEO of optionsXpress. David says cash was one of the last things that his company was looking for from a private equity partner. OptionsXpress, an online broker based in Chicago, Ill., specializes in the fast-growing market for online options trading for retail investors. The company expanded rapidly over the first three years of its existence, reaching 70,000 accounts and $50 million in revenue by the end of 2003. "Because we were very capital-efficient and profitable, we didn't need an outside investment to grow the business," said Kalt, "Instead, we viewed a private equity relationship as a way to navigate very rapid expansion and prepare for an IPO."

What helped get optionsXpress to the IPO stage? A $90 million equicty investment provided liquidity to early shareholders, allowing the firm time to fully consider its IPO strategy. Additionally, its equity partner helped them understand the process and introduced the optionXpress executives to key players in public markets. It helped the company build a top-notch board and recruit an experienced CFO who upgraded the company's financial systems and reporting to public market standards, further assisting the company in its IPO path. In January 2005, optionsXpress (Nasdaq: OXPS) completed a successful public offering.

There's no set timetable for seeking out private equity. Some companies operate perfectly successfully on their own for decades; others like Facebook, seek an infusion of capital earlier in their life cycle. Regardless of the exact timing, most successful entrepreneurs and management teams do eventually reach a stage where exponential growth is possible, and where they want to reap the financial rewards associated with the company they've built. When your company comes to this crossroads, you, like many other successful entrepreneurs, may wish to consider taking on a private equity partner.

Canada doesn’t have an innovation gap, but a commercialization gap

Davos gave Stephen Harper the opportunity to discuss the issues about how to allocate capital (tax payer money) to strengthen Canada for all of our futures. Quite the job and we can see how hard it is for government experts to be Venture Capitalists (Solyndra is one boondoggle costing the US tax payers a crazy half a billion dollars. If only Canada had a government fund that size) or even more staid private equity investors up at the RIM size of business.
It ain't easy. Business grows and then declines. Canada and America have their 100 year old companies that have survived, along with ones that the government has helped during struggling times. The problems come if the government takes over the business, just look to the UK in the 70s as their well meaning government meddling destroyed many a British pearl - Rover, Rolls Royce, etc.
Barry McKenna has a great article in the Globe and Mail about being a top politician and debating how to boost business growth in the country. Barry's opening sentence is a beauty:

Stephen Harper’s Davos manifesto is the Throne Speech he never delivered at home.

Better late than never. Best to know what’s coming. It’s now clear that innovation – or more precisely, the dearth of it – has rocketed to the top of the Harper government’s agenda. The Prime Minister is not happy about the return the country is getting on the roughly $7-billion a year Ottawa pours into research and development. “We believe that Canada’s less than optimal results for those investments is a significant problem for our country,” Mr. Harper said last week at the World Economic Forum in Davos, Switzerland.

He vowed to act “soon” on the recommendations of an October task force report chaired by Tom Jenkins, chairman of software maker Open Text Corp. The report’s central finding is that Canadian companies are investing less in R&D than they did nearly a decade ago, falling worryingly behind foreign rivals in spite of one of the most generous tax regimes in the world.

Mr. Jenkins’ main prescription – revamping the $3.5-billion-a-year Scientific Research and Experimental Development program – is now apparently also Mr. Harper’s plan. And the next budget, likely coming in late February, will no doubt signal big changes.

Mr. Jenkins argues the SR&ED tax credit should be simpler and less generous, diverting the savings to more focused funding of business innovation. Among suggested changes: limit the credit to labour costs and reduce the generous refundable credits available for smaller Canadian-owned companies.

Nearly 25,000 companies across Canada use the tax break, from the majors to tiny startups, covering virtually every industry in the country. But a recent Globe and Mail investigation found widespread abuse, including bogus claims and oversized consultant fees paid from credits.

And a report by federal Taxpayers’ Ombudsman Paul Dubé to be released as early as this week is expected to expose a litany of complaints from users about how the Canada Revenue Agency runs the program, including confusing and inconsistent decisions.

Mr. Jenkins would put innovation spending under the control of one federal minister and one agency, shifting the balance from tax breaks to direct funding, putting more money into “late-stage” venture capital and better use of government purchase to spur home-grown innovation.

These are sensible suggestions.

In spite of all the money Ottawa spends, there are large and significant breaks in the financing chain needed to take great ideas from the lab to factory floors, and global markets. Shrinking the $7-billion envelope, including the SR&ED, won’t produce more of what Mr. Harper wants. It could produce less. And if the money is going to be diverted from SR&ED, to where? Should some industries or companies be favoured? The Harper government isn’t saying yet.

Part of the problem is a chronic misallocation of capital – too much going to some sectors, such as housing, and not enough to the country’s innovators. Canadian business leaders say high risk loans and venture capital for startups and entrepreneurs is severely lacking in Canada, and that impairs companies’ commitment to innovation, according to a report being released Monday by the Conference Board of Canada. “There is an urgent need to identify solutions to the weakness in Canada’s capital markets for innovation,” concludes the report, From Perception to Performance.

The Canadian Advanced Technology Alliance, which speaks for the high tech industry, has been making the case to Ottawa that Canada doesn’t have an innovation gap, but a commercialization gap. “Too often our businesses are not effectively growing their firms into international successes. Too often, the full rewards of our innovators are leveraged offshore,” CATA senior vice-president Russ Roberts lamented in a recent update to members.

The biotech industry, meanwhile, is pushing the idea of flow-through shares – now used by resource companies – to help companies reach the stage of commercialization when they have high capital needs but few revenues.

The same model has helped turn Canadian resource companies into global leaders by encouraging startups to go public and tap investors willing to take big risks in return for tax breaks, argued Rick Sutin, a partner and corporate finance specialist at Norton Rose in Toronto. So why not technology-focused companies? (Flow-through shares allow companies to transfer tax deductions to investors, who can then use them to lower their personal or corporate tax.) The idea might not cost taxpayers anything, Mr. Sutin said. There’s a limited pool of non risk-averse investors, and they would simply shift from mining and oil to tech.

Canadians have a lot to say about how to steer more capital to innovation.

Odd, then, that Mr. Harper would choose the Swiss Alps to launch such a crucial debate.

The best private equity funds are skeptics

"People will generally accept facts as truth only if the facts agree with what they already believe." 

Andy Rooney said these wise words and with his long history in the media, he would know.
Mistakes happen in private equity when the buy side--the fund managers-- fall in love with what they want to see.  Good funds want to critically assess the financial numbers long before meeting the personalities in order to make logical decisions. Once the fund meets the owners, their decision is 50% made. Now to see if they can get along as partners for the next few years.
Before you approach a private equity fund, ask, "Do the numbers fit with what you are selling as your business story?"
If not, get an exempt market dealer to help you develop your case and financial story. If you have revenues, debt is not the issue, you will be of interest to some investor.

Andrew Bell's big question on BNN The Pitch

Do you notice on the BNN hit TV show, The Pitch, Andrew Bell often asks the private equity panel this question: “How do you decide which entrepreneur gets the thumbs up?”

Andrew is asking for the secret recipe that gets one owner the investment but another seemingly good business owner gets rejected. Invariably, the private equity experts will say it is the people.

What is it about the people?

Well, they have to be passionate.

Yet many passionate people do not attract financing. What is the issue?

It really does come down to how open the person is to critical probing about their business. Do they answer questions directly or fudge? Do they listen to ideas by the private equity experts or do they dismiss, or even worse, ignore concerns?

When private equity says they invest primarily in the people, they mean they invest in people willing to move over and share the steering wheel.

Should I hire a broker or investment banker to help me sell my company?

An important question for an owner wanting to sell their business is, "Should I hire a broker or investment banker to help me sell my company?

The answer to this question is “maybe.”

The fees charged by intermediaries are significant. However, there are scenarios when qualified intermediaries can add significant value far in excess of their fees.

For example, if your company has performed well for the past two to three years, you want to sell most or all of it, there are a large number of potential buyers and you have no idea who the right buyer will be, a sale process run by an intermediary potentially can generate a much higher value. Another scenario is where the intermediary has particular expertise and experience in your industry, and there is “story” required as part of your sale presentation. If there is significant risk to your business if the word leaks that you are selling, you are likely better off working with a smaller exempt market dealer than a transactional lawyer.

If you want to save on lawyers’ fees, a good exempt market dealer will make sure the bulk of the work is done before calling in expensive lawyers.

There are many scenarios where an intermediary will not add value. For example, if you know the one or two likely best buyers, then you should be able to maximize value with the assistance of an experienced transactional lawyer (which you need regardless).

Private Equity likes to use intermediaries, exempt market dealers, when selling their own portfolio companies.

Often it’s a good idea to seek the advice of your accountant when making this decision. If you decide that you need an intermediary, please do not base your decision on the firm name. Be sure that the individuals that will be representing your company (often not the senior partner that comes in for the dog and pony show) have the talent, experience, time and drive to get your deal done. 

Speak to the local ExemptMarket Dealer Association in your geographic area.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.

Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.

She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.

She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

Capital gains key component to Romney’s tax strategy

Different types of taxes seem too difficult for Americans to understand. With our sales tax HST, Canadians may understand the distinctions.

I do find it interesting which media sources like to just give the percentage and no elaboration on whether it is income tax or capital gains tax. The charity donations are also worth comment.

Here is a Palm Beach article on the topic.

Capital gains key component to Romney’s tax strategy

Tony Clement - Canada's best years are ahead of us

The best years are ahead of Canada. These positive words were part of Tony Clement's speech yesterday at The Empire Club, Toronto, just yesterday.
Clement has applied government resources towards helping business in a consistent and positive manner; this is noted and appreciated. Here is an excerpt from his speech well worth the read.:

Speech by Tony Clement, President of the Treasury Board of Canada, to the Empire Club of Canada

Thursday, January 26, 2012

Toronto, Ontario

A leading American historian and senior advisor to former U.S. secretary of state Condoleezza Rice has finally admitted the truth—Canada won the War of 1812.^[1]

The year after that struggle came to a close, another Canadian hero was born—the great architect and visionary of the Canadian state, Sir John A. MacDonald.

"We are a great country," he said, "and we shall become one of the greatest in the universe if we preserve it; we shall sink into insignificance and adversity if we suffer it to be broken."^[2]

Sir John A. saw clearly the road ahead. And he formed this country with the values of the Empire in mind—freedom, peace, justice and the equality of people.

Over the years, those values have asserted themselves in Canadians in times of crisis.

We see them in our sacrifices at Vimy, Ypres and Paschendale, in Normandy, Korea and Afghanistan.

And we see them in our compassion and aid for the victims of earthquakes, tsunamis and disasters in foreign lands.

Canada has come a long way in 200 years. We have grown and evolved into the one of the most successful countries in the world.

When British Prime Minister David Cameron visited Canada last September, he acknowledged Canada’s leadership at the start of this new century.

In a speech to Parliament, he suggested Canada had everything it needed to succeed, and passed the torch.

He noted our leadership in two areas vital to success in the 21st century—innovation and education.

"From Blackberry to Canadarm," he said, "yours is a home of innovation and technology."

He also congratulated Canada on its diversity, saying the way we had “integrated people from many different backgrounds into a mature democracy is a model from which we can all learn.”

And the British Prime Minister is not the only one who believes in Canada these days.

Our economic leadership during the global economic crisis of 2008 has been recognized around the world.

Last year, both the International Monetary Fund (IMF) and Organisation for EconomicCo-operation and Development (OECD) forecasted we would have among the strongest economic growth in the G-7 in 2011, and again this year.

And for the fourth year in a row, the World Economic Forum rated the Canada’s banking system as the world’s soundest.

In addition, three credit rating agencies—Moody’s, Fitch and Standard & Poor’s—have reaffirmed their top investment-grade ratings for Canada.

And Forbes magazine recently ranked Canada the world’s best place to do business.^[3]

By any standard, Canada has weathered global economic crisis and ongoing financial uncertainty well, particularly when compared to most other developed nations.

Since introducing Canada’s Economic Action Plan in response to the economic downturn of 2008, we have recovered more than all of the output and all of the jobs lost during the recession.

And almost 600,000 more Canadians are working today than when the recession ended, resulting in the strongest rate of employment growth during the recovery by far amongG-7 countries.

And real GDP is now significantly above pre-recession levels—the best performance in theG-7, according to the IMF and OECD.

But our country is not out of the woods yet.

As we emerge from the worst recession since the Great Depression, we know Canadian families are worried about their jobs and their financial security.

While we understand that the government’s role is to create the conditions in which Canadians will thrive, we also believe that it is the ingenuity, the aspirations and the determination of Canadians that will be the driving force behind economic growth and jobs.

So, in the time I have remaining, I would like to tell you about the things we are doing to help make that happen.

I’ll mention just three.

The first is reducing the deficit and balancing the budget over the medium term.

The second is freeing businesses to grow by cutting red tape that can stifle productivity.

And the third is creating opportunity through our move to Open Government.

REDUCING THE DEFICIT

Throughout our history, Canadians and their government have learned valuable lessons from economic crises.

Today, Canadians understand the necessity of reducing the deficit and returning to fiscal balance in the medium term, finding savings within government spending, and taking targeted actions when necessary to support the recovery.

This is our balanced approach that will boost our efforts to achieve a sustainable and prosperous recovery, and preserve our Canadian economic advantage now and in the future.

Canadians understand this. And in last May’s federal election, we received a strong mandate to eliminate the deficit, keep taxes low and continue creating jobs for Canadians.

In the Budget that followed, we announced our plan to return to a balanced budget while keeping taxes low.

Building on previous efforts to reduce government spending, we launched our deficit-reduction initiative.

This review is about more than finding savings. It is about modernizing government.

It’s about retooling for the future—and providing the right programs and services at the right cost to support Canadians’ success in the years ahead.

FREEING BUSINESS TO SUCCEED

But as a country, we need to come at the challenge of creating economic growth and jobs in Canada from several different angles.

That’s why, in addition to getting our fiscal house in order, we are making sure the people, businesses and communities in Canada have the tools they need to succeed.

That brings me to our second key initiative—cutting government red tape to free businesses to grow.

We believe red tape impedes economic productivity by taking up precious time and resources, and curbs the entrepreneurial spirit.

Cutting red tape helps business focus on what they do best: sustain the economic recovery by creating jobs and generating wealth.

It also spurs innovation by leaving a clear regulatory picture for entrepreneurs, and a marketplace that is easier to understand.

Prime Minister Harper set out to realize all these benefits when he set up the Red Tape Reduction Commission last winter.

This Commission issued its final report earlier this month.

And as a sign of our commitment, we are taking action to implement a “One-for-One” Rule to control administrative burden on business.

This work is just one example of how we are helping businesses grow and invest for the future.

OPEN GOVERNMENT

The third initiative I’d like to mention is Open Government.

Open Government allows Canadians to not only learn about, and participate in government, but also to create new products using government data and information.

Last spring we launched this initiative through three main streams.

Open Data, which is about offering Canadians Government data in a more useful format to reuse in innovative ways.

Open Information, which is about proactively releasing information, including information on government activities, to Canadians on an ongoing basis.

And Open Dialogue, which is about giving Canadians a stronger say in Government policies and priorities, and using Web 2.0 technologies to expand citizen engagement with government.

By tapping into the ideas and talents of our citizens, we can be more responsive to meeting their needs.

In fact, earlier this winter, we held an Open Government on-line consultation, and Canadians gave us some great suggestions.

We also held the first-ever, Government of Canada tweet chat to generate discussion about Open Government.

Open Government can also strengthen transparency and accountability in government, and a strong democracy is essential to a nation’s economic success. I’m a true believer in this.

CONCLUSION

Let me conclude my remarks today with one final observation about our need for economic growth and jobs in these challenging times.

Over the years, Canadians have learned that chronic deficits are a mortgage on our future. Chronic deficits create higher taxes, less opportunity and less freedom for our children and our grandchildren.

Ultimately, they squander the opportunities that have been given us.

That’s why we must stick with our low-tax plan for jobs and growth—a plan that has worked and served Canadians well.

I believe Canadians can overcome any challenge. We always have—as long as we never waste our treasure or lose faith in ourselves.

As Winston Churchill said when he addressed our Parliament during the bleakest days of the Second World War, “we have not journeyed all this way across the mountains, across the Prairies, across the centuries, because we're made of sugar candy.”

Freedom, hard work and sacrifice have got us where we are today, and leadership, fiscal prudence and helping Canadians achieve their dreams will take care of tomorrow.

It’s not always easy, but as history shows, it is doable.

And the benefits for us and for future generations will be immeasurable.

Thank you.

Angry Birds Attack the Leadership of RIM

RIM is getting whacked for its leadership reshuffle. The market remains unimpressed.
Running even a profitable business is no guarantee that last year's performance will be repeated. Customers need to be convinced again. Retailers need to be encouraged. employees need to be motivated. Alliances need to be maintained.
Margaret Wente writes harshly about the RIM leadership and gives a scathing indictment to the two billionaires. She probably has a point and someone should have been telling these two to focus on their business and check out apps.

Back in 2007, Mike Lazaridis and Jim Balsillie were like gods. Everyone agreed the Research in Motion CEOs were the two smartest guys in Canada, and possibly the entire world. Anyone who was a someone owned a BlackBerry. A BlackBerry meant you were a player. Even Barack Obama had one! But even if you didn’t, you cheered for RIM because finally we could forget the hideous national embarrassment of Nortel and hold our heads up in the world. Thanks to them, our whole country was a player!

When Roman emperors paraded through the streets in triumph, they used to hire a slave to whisper in their ear, “Remember, you are just a man.” Maybe Mike and Jim should’ve tried that.

When Steve Jobs unveiled the first iPhone in 2007, Mike Lazaridis trashed it. He told his employees nobody wanted to have a personal computer on their phone. Back then, RIM commanded nearly half the U.S. smartphone market. Today, it has more like 10 per cent. Not only do people like to have computers on their phones, they also like to waste millions of hours playing Angry Birds. Who knew?

The worse things got, the more arrogant they became. Last spring Mr. Lazaridis walked out of a BBC interview because he didn’t like the question. “You implied that we have a security problem; we don’t have a security problem,” he said. “We’ve just been singled out because we’re so successful around the world. It’s an iconic product, used by business – it’s used by leaders, it’s used by celebrities, it’s used by consumers, it’s used by teenagers – we were just singled out.”

Then there was all that money. Funny things happen to people who get stupendously rich. Instead of dreaming night and day about the next great product, they start to dream about building the most spectacular mansion in the entire country, or buying a National Hockey League team. Mr. Lazaridis’s construction project (a 24,000-square-foot “cottage” on the shores of Lake Huron) has been going on for years. Mr. Balsillie spent three years haggling for the Pittsburgh Penguins, the Nashville Predators and the Phoenix Coyotes.

Meanwhile, Mr. Jobs was dreaming up hit products that people would line up overnight to buy. As Toronto money manager Tom Caldwell said, “Once the CEO is building the maxi-yacht or the great mansion or trying to buy hockey teams, he is not paying attention to his business, in my mind.”

Mr. Jobs despised tech billionaires who acquired mansions and fancy toys. “I’m not going to let money ruin my life,” he told his biographer. He had no taste for “that nutso lavish lifestyle that so many people do when they get rich.” The trouble is that people who get rich get fat and soft. They’re not hungry any more.

Mr. Jobs knew that if you stop swimming fast enough, you die. He was a screaming perfectionist who cursed out his staff when they moved too slowly, or when some product detail wasn’t good enough. Meanwhile, last year, when RIM released the PlayBook, which was supposed to compete with Apple’s iPad, it was a miserable flop: It couldn’t do e-mail. It had no Skype, no GPS, no Angry Birds. As a New York Times tech reviewer wrote incredulously, “There’s no app for that.” It wouldn’t even fit into the breast pocket of a jacket.

Read more

Where was RIM's Board of Directors?

RIM leadership may have got arrogant but they also gave a great deal to the Canadian entrepreneur scene. Jim Balsillie was generous enough to give me an interview in 1999 for my book, e-Volution: How to use the Internet to grow your business. He has done his strategy very well - something I see rarely done by Canadian owner/founders.
All this talk we are hearing from the USA about how "private equity destroys jobs" and "capitalism is evil" completely by passes the fact that humans create businesses and destroy businesses. The best businesses rarely go beyond a founder's life cycle and both founders of RIM are past their peak entrepreneurial risk taking days.
There is your problem.
Where were the Board Director experts to point out this fact? As I have hammered in my blog, advisers and board directors appointed by the owners will never say what needs to be said. Have them appointed by an outsider and you will have a very different result.

Lessons from the recession for business owners

When I worked at a strategist for a bank and wrote the speeches for the CEO, who was also the founder, he would confuse me with his insistence on always bringing up complacency. As a young MBA with my career before me, I could not see wasting time on such a mundane topic which seemed more of a downer and something your mother would say. 

As I look back, I realize he was wise with his observation that success brings complacency and complacency brings failure.

Lesson from the recession: Run your company during boom times as if times were lean.

We have heard many leaders bemoaning that their companies would be far more successful if they had run them during the boom period as they are running them now. Without question, success can bring complacency. However, the best leaders we know resist this tendency. Their companies’ cultures foster continuous improvement and cost-reduction regardless of great performance.

Similarly, the advice we often give entrepreneurial and family business owners is, “Run your company as if you are preparing to sell it in three years.” This means eliminating under performing employees (which can be difficult, even when done with great care and consideration, but is critical), and building cost-cutting and improvement initiatives. These efforts will grow EBITDA and result in a more successful, resilient and valuable company.

As for my old boss, his bank is still in business, having survived the derivatives madness, and has achieved its vision to be global. 

Complacency is indeed the key word to put in all your leadership speeches.