How to Pitch and Get Investment

Having a business innovation is easy: pitching to investors for funding is much harder.

Entrepreneurs, business owners, sales people and corporate innovators often do remarkable presentations to pitch their concept—only to be rejected by corporate decision makers or private equity managers who do not grasp the long term value. Why does this happen?

Having watched private equity managers who access business pitches, the person on the receiving end—the “catcher”—tends to gauge the pitcher’s competence at carrying through, as well as the deal. An impression of the pitcher’s ability to open up and discuss the business in detail will quickly overshadow the catcher’s assessment of the value of the deal. In other words, if the pitcher can work with others, the deal moves forward. If there is any hint of resistance to team input, the deal is dead.

Having interviewed many private equity managers, there are patterns for those judging business opportunities.

Catchers subconsciously categorize successful pitches as show runners (smooth and professional), experts (quirky and unpolished) and neophytes (inexperienced and naive).

Research also reveals that investors tend to respond well when they believe they are participating in developing the business going forward. As Jacoline Loewen, a private equity expert, recommends, “ CEOs pitching their business should pull back and encourage comments on the business. Then use these comments to build on the Private Equity manager’s comments to make them feel they are adding to the future plans.”

To be successful pitching, whether marketing ideas, sales innovations, a start-up or a mature business, portray yourself as one of the three creative types – show runner, expert or neophyte. Then engage the catcher in a discussion where their views are discussed and integrated into the plan going forward.

By giving catchers a chance to shine, you sell yourself as a likeable collaborator.

You can Google back programs of The Pitch on BNN and watch how the private equity investors either warm to the pitcher or shut them down. See if you can categorize the pitchers who do achieve the thumbs up from the private equity panel. You will see they fall into one of the three categories and that they embrace comments enthusiastically and open up to ideas.

Jacoline Loewen on the three steps to create value

As financial advisors, our focus is on companies in the lower middle market. This typically means companies with annual revenue between $15 million and $75 million. Since the smaller revenues, mean less room to do financial engineering, our strategy for value creation is different.

We, by contrast, base our value-creation strategy on three elements:

1.      leadership development,

2.      enterprise improvement and

3.      growth. 

From our experience, we know that if we accomplish the first two, growth usually results. Even if it doesn’t, such as during the recent recession, significant value can still be created.

Good leaders make good companies. It is not required that our leaders have a long track record of success. We can support them in accomplishing that. What is required is that the leaders possess the personality traits and capabilities that are required to realize the vision of the company. The leadership for the Post Office is different from Apple. For a less extreme example, if the success of a company hinges on continually developing creative, new products, then the leader of that company must possess a personality and leadership style that fosters ideation and creativity. By contrast, such a leader likely would not be effective if they needed to streamline manufacturing processes. Good “fit” of leadership is paramount.

Be sure you have the right team in place. Do a critical and honest analysis of your senior leadership relative to the company’s needs, and adjust accordingly.

If you are the owner and at the center of most activities, this may mean firing yourself.

YIKES!

Owners who realize they are the biggest block to growth and have the ego to hire a CEO will be far more likely to find greater wealth within the next five years.

One of the elements we look for in an investment is the ability to evolve the enterprise. If accomplished, this also will create value without the need for growth. However, when coupled with growth, the value creation is multiplied. Enterprise evolution, typically, is accomplished by harvesting one or more of the following:

Strategic planning. For us, the strategic plan is the cornerstone of enterprise improvement. It is not a just a budget. It sets the management team’s vision.

Sales and marketing. This is an area that often can be improved. In our experience, a majority of lower middle-market companies have not invested sufficiently in this area.

Systems. Often there is an opportunity to evolve an enterprise by improving or replacing systems, including accounting, ERP, oversight, reporting and accountability.

Asset utilization and balance sheet. In lower middle-market companies, there almost always is the ability to improve and create value through better asset utilization and balance sheet focus. This may include using a return on investment framework for capital budgeting, as well as basic items such as improving accounts receivable, accounts payable and inventory turns through focus and technology.

If you are able to accomplish some or all of the leadership development and enterprise improvement initiatives described in this article, you will create value irrespective of business cycles. Even better, you are likely to also create growth.

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. 

Joe Oliver speaks up for the environment

There is no hope of reasoning with so called environmental groups protesting the pipeline from Alberta to Kitimat.  Joe Oliver is exposing these groups and their malevolent corruption as reported in the Financial Post.
I worked in northern BC for ESSO and Granduc Mines and was grateful that the generous salary that paid for my university and my trips to Acapulco at spring break. These mining companies built good homes, rec centers, schools and  a hospital; they even funded a museum. (My town looked just like Deadwood's set, minus the Gem Salon, but with a more sedate hotel.)
The nature in Northern BC is immense, stretching forever with few humans living there. The mine road, town and mine itself took up little space and now, if you look at Google Earth for Stewart, you will see nature has taken back much of this development. That reversal back to overgrown forest took my lifetime.
So it was crazy to me when people in Toronto would tell me they were against ESSO and Granduc as they were exploiting the land and the people. I could not understand why they would belittle my father's living, mining for the very minerals in their phones and computers. Their words about pollution and strip mining just did not match my reality where I did not see that story line beloved by Greens.
Maybe they were watching too much TV, I do not know.
I do know that at a speech by Enbridge's CEO, a smart man stood up and voiced concern about the wilderness of BC. He had been fishing there and was concerned an oil spill would affect the people's only livelihood. I shook my head because just a few decades ago, the area had employment opportunities for aboriginal people in Granduc. Then the BC government listened to the environmental movements and shut down any mining development, leaving many men of my father's generation to rot away late in their careers.
We need to speak up for politicians like Joe Oliver who have the guts to point out these activists, their sourcing of money (US), the hypocrisy of these Hollywood stars like Cameron who has massive homes and uses energy like a gushing water pipe to make his movies and let us not even add in the energy used by audiences to watch these films. If Darryl Hannah does not like development, go live in Zambia or Zimbabwe. 
In the Financial Post article, there were many comments that agreed with Joe |Oliver and I liked this one:

You can not convince these environmentalist, city dwellers that the Gateway Pipeline is a benefit to Canadians. They are not interested in where we sell our oil, if we create jobs or grow the economy. They do not care if we become a less competitive country with a lower standard of living. They do not care about the significant advances in technology that monitors and prevents spills and other problems with pipeline transportation, the safest mode of oil delivery today. But they fear environmental damage from a pipeline based on partial or unsubstantiated information they have been fed by various sources. 

How do you reason with people who won't listen or learn?

Jacoline Loewen on the defense of Private Equity

At a recent advisory board meeting, one of the Directors made the comment about how the company owner did not want private equity as it would strip the business assets and destroy the employees. I was shocked at this short sighted view, particularly as this very same Director was doing a JV with a German company with a 50% partnership and was familiar with the benefits of working with financial partners.
How did Private Equity get to this position? What happened?

In 1980, approximately $4 billion was invested in private equity in the USA. Today, that number is estimated to be over $600 billion. Canada has followed a similar, but smaller, trajectory.

Many of our great companies and iconic brands were founded with private equity investment and partnering including: RIM, Opentext, IMAX, Skidoo, Four Seasons, Mastermind, Flickr, Apple, Sleep Country, Harveys, Rogers, Cirque duSoleil and Lululemon. Many private equity individuals and firms have generated very large and highly publicized returns on their investments. They have made it the Billionaire's Lists.

The visible, monetary success of private equity was met with some general concern, skepticism and, perhaps, envy from the business community and seeded the pervasive negativity of today. These attitudes were then heightened by the sometimes-questionable and widely publicized practices of mostly American well-known private equity professionals like Michael Milken of Drexel Burnham Lambert, who drove tremendous merger and acquisition activity with junk bonds, T. Boone Pickens generating fortunes with greenmail, and Carl Icahn’s ruthless corporate slashing. 

In Canada, Vengrowth’s Labour Fund rise and fall was not helped by the perception that management had taken a huge fee for themselves, and lived the high life in mansions, while not giving the promised returns. I heard a top journalist lumping all of labour funds and private equity with Vengrowth. 

It is very unfortunate that the journalist put the term “private equity” into a negative business view which flows through to the public’s dialogue. It is hardly surprising then that the bad apples of PE spoil the reputation for private equity that has done very well. Bermingham Construction, Hamilton, was only able to get private equity, not bank finance, and then able to grow to a significant size. This growth would have not happened with bank debt.. 

The public’s concern about private equity was cemented during what Carlyle’s founder, David Rubenstein, called the golden age of private equity, from 2003 to 2007. These years saw unprecedented levels of investment activity, investor commitments, debt deployment and the formation and growth of thousands of private firms and companies that support their investing. During that period, 13 of the 15 largest buyouts in history occurred, and three of the largest private equity firms went public, creating tremendous wealth for their general partners. 

During the golden age, many owners of small- and middle-market companies, and much of the public, started considering private equity investors to be greedy abusers of debt, willing to do whatever is necessary to generate a quick return, even to a company’s detriment. Unfortunately, that perception was not unfounded. Fortunately, there are many great private equity firms that do not operate that way.

Private equity is like many industries (and political parties) where a highly visible portion sets the public’s perception of the whole. There are, in fact, many private equity firms that don’t fit the stereotype, and they can be great partners to business owners and management teams.

Reputable private equity firms focus on creating returns though growth and improvement of the companies they invest in. They develop transaction structures that align their needs with those of the selling parties, as well as the company and its employees. They use appropriate leverage. They develop well thought out incentive plans for company leadership and employees. They support management in developing and executing a strategic plan that will satisfy stakeholder expectations and realize the company’s full potential. They bring resources to bear that the ownership and management wouldn’t otherwise have access to. Finally, they are valuable sounding boards and guides. 

They add value.

Don’t assume all private equity firms — or corporate finance advisers for that matter — are the same. If you are considering a transaction, talk to an exempt market dealer, like Loewen and Partners to point you towards those private equity partners with the track record and who make great partners. They definitely exist.

Banks leave their debt business to the ABLs

The Banks are turning more to low risk business, quite understandably so. Wealth management will be the big winners over the next five years. The question will be what happens to private equity if the banks will not be as accessible with debt lending?
Some experts are saying the golden age of private equity is over because of the decline in bank interest in lending.
Over the past few years, we have seen that banking is getting eroded by - you guessed it - private equity in the ABL business model design. What ABL does is do asset-based lending which is what banks used to very well but it takes up too much time to manage the risk assessment. Remember, the big banks have moved beyond that tailor customizing the suit for the quirks and foibles of the one entrepreneur. Big banks are mass manufacturers of financial loans. The riskier business owners have had to look elsewhere for loans that are more expensive than the banks, but will fill the gap to serve that larger client.
Canada's ABLs have been having a bumper couple of years as they bring their customized loans forward to serve Canadian businesses needing financial support. From my experience with the ABL business, it is a good alternative to banks and the people working with the business owners are far more mature than the bank employees. I also give the ABL industry a huge round of applause for making Canadian businesses more competitive by shoring up worthy companies when the banks would not. Again - the banks are right as these are higher risk loans.
Europe is in a far worse situation than Canada and Danial Shafer at FT points out GE's growth as PE struggles to find loans to help them fund their activities because the banks have shrunk their debt business.

Private equity groups in Europe are increasingly turning towards asset-backed loans as they look to fill the financing gap left by retrenching banks.GE Capital, one of the largest pan-European providers of such loans, is forecasting a wave of asset-based lending deals in 2012 after this year saw such financing becoming more attractive to buy-out groups.The lending arm of US conglomerate General Electric said financing facilities given to private equity backed mid-market companies had shot up to $1.3bn in 2011 from almost zero in the year before.Stephan Caron, chief commercial officer in the UK, said he expected asset-backed lending to grow further next year as GE Capital’s pipeline of deals had approached the size of this year’s financing facilities.