Please tell me you have some sales

The Dragons looked stunned when Paul with the plastic doo-hickey that rolls up the rim of a paper cup said he had sold 200,000 of the things and had made $100,000. With the detailed description of sales achieved, energy swept through the Dragons and they each piled in with their ideas about the potential market. It was exactly what Paul said he wanted – a brain storm with smart entrepreneurs- although he did also let slip that his friends tell him, "You're crazy!"
Kevin O'Leary agreed, "You're crazy but you're crazy like a fox." Glad Kevin's a Simpsons fan but when asking for investment money, save your psychological confessions for when you've made the front cover of Profit because that streak of eccentricity could make your potential investors a tad nervous. Even the kindly Robert Herjovec said, "Paul, it's over."
Moving on to the ideas that amuse us armchair Dragons, there was one gentleman anxious for Canadians to make his symbolic head gear as instantly recognizable as the sombrero. Guess he's not heard about the Mounties' hat made famous by Dudley Do-Right, or Paul Gross in Due South and he must have missed that law suit where the Mountie preferred to wear his turban. We got a sense that Brett Wilson, the new Dragon, like Clint Eastwood, would have liked the idea if it had involved a big cowboy hat with a black cigar thrown in for free. Now you're talking. Someone said that Clint Eastwood has two expressions – the one with his hat on and the one without the hat. Likewise, Brett has two expressions: one when he wears the next Canadian headgear – the "duck foot" hat - and one when he doesn't.
Then the ladies from No Smudge Lipstixx were a little alarmed to learn from Kevin that they were in the most competitive industry from hell and that their competitors would blow their cars up in their driveway. Yikes! Kevin's comments reminded me of when I was at university, we had a Friday night party where we watched Charles Bronson movies and every time Charles killed someone, we all had to take a drink. I think Dragons' Den could package a game where every time Kevin says "you're crazy" you take one swig of beer and "you're an idiot", a shooter of tequila and when he makes someone cry, you get to wear the "duck foot" hat.
When a teacher with language software arrived, Kevin groaned, "Please tell me you have some sales." Yeah – half a million dollars worth sold from the basement of Catherine's home. Kevin and Robert Herjavec agreed that it is unique for early stage software to have such a good level of sales.
I'm a huge fan of Kevin and the sheer exuberance he brings to Dragons' Den. Someone has whispered in his ear that he's not always super nice but as he says, life is tough. Kevin says it aloud and when people let their stress rise, they miss what Kevin is needing from them. When pitching, expect your heart to pound and give yourself something to calm down. Hold your lucky rabbit's foot or breathe slowly.
I would prefer to deal with someone like Kevin who lays his cards out and gives the entrepreneurs clues to what he needs to hear. He told Catherine he cares about the children which got guffaws from Robert, but if Catherine had been paying attention, she should have jumped in with statistics about the children using her software. Instead, she didn't give even a smidgeon of numbers. She left Kevin remembering his purgatory of life in educational software and swigging back what looked suspiciously like scotch, from his water glass.
Jim Treliving piped up that anything Kevin O'Leary likes, he's interested in coming for the ride too. Poor Kevin has to piggyback the other Dragons and they are making his deals more competitive by bidding up his offers. With the dramatics over, Arlene snapped up that deal at half the value and Big Jim did not join her. Unlike Kevin, Arlene walks softly but carries a big stick. Did the Dragons know that she made her original money by investing in educational software? Catherine, did you hear Kevin say Arlene's ripping you off by stealing half your company?
At this point, my son flipped his laptop over to me to show Catherine's software. He's just started Spanish this term but can already say a few phrases, seems to be handling the vocabulary and is actually enjoying it. As an anxious parent, I have wondered how he has managed to survive. Turns out the teacher gets them to do mini tests on the software as a treat which means my son has already done many quick quizzes to test his Spanish. Compare that to the two tests he may have done with a traditional classroom teaching method. That's hot – which brings us to the end of the show – the mini street Cirque De Soleil called Aerial Angels- two dynamic women with a sizzling street act.
Again, Kevin told the street acrobat, Alison, she was arrogant, did not listen and forget about the crying crap because business is no place for tears. Robert as usual, saved the day advising Alison to decide if she was an artist or a business owner – the same business attitude blocking Catherine from earning the profits she deserves.
Suddenly, from the shadows Brett spoke up, "Alison, I love your passion. I'm in."
The other Dragons looked at Brett as if he had confessed to being scammed by a Nigerian email.
Dear Brett,I am writing to you with a matter of great urgency. My beautiful acrobatic auntie has expired and I need to send her bank balance to an Albertan account. Please show your compassion and tell me the details of your bank account. We are absolutely keen to meet you too, but you can send a blank cheque as well, if you prefer.
Had Brett taken to heart Big Jim's earlier advice to the "roll up the rim" fellow to get a good lookin' gal and sales would soar? I'm with you on that Jim, and Richard Branson of Virgin definitely buys the Treliving marketing theory: There's no doubt that in the right situation, looks do sell. But perhaps Arlene laughed wryly because these are exactly the reasons that women think men in business can be manipulated – how smart is it to make decisions using your libido?
After this show, Brett will be smiling as he specializes in entertainment and knows how to make money with these talented artists and Arlene got a slam dunk with her software deal. Albertans are a mysterious, quiet bunch but they're the ones in Canada with the growth economy, making the money.

CBC invited Jacoline Loewen to blog for their reality TV Show Dragons' Den. Loewen raises capital for companies and is the author of Money Magnet: How to Attract Investors to your Business.

Continue reading at Dragons' Den at the CBC

With a Name like Schmucker's

Are you afraid that your family business will be taken from you if you partner with private equity? Mark Schmucker is the fourth generation leader of Schmucker and was recently in Toronto giving a presentation about how the family business mystique pays off in sales.
Mark showed advertisements from the 1960's which could play today just as successfully with their emphasis on family living, green lawns and a plate of jam sandwiches.
Mark says that in the early 90's, during the big market downturn, his father and uncle made the decision to bring in private equity partners. At the time, the Schmucker business was not doing well and there were family issues too.
With the help of partners (not just lenders) who put in cash but also brought a great deal more, Schmuckers began their growth tract by starting off buying Jiffy peanut butter. Mark says at first the family thought the spread into breakfast foods seemed too ambitious and peanut butter seemed crazy, but today they are happy because they own 8% of a billion dollar company, fifth in their industry.
Not bad.
Jacoline Loewen's book, Money Magnet: Attracting Investors to Your Business, goes through this challenge for business owners to decide if they want to be in control or get wealthy - lifestyle or legacy. Schmuckers chose to go with "get wealthy" and found out what thousands of family businesses have learnt: giving up some of the company to private equity partners results in a lot larger amount of money.
John Loewen says, "bringing in private equity partners to a family business is probably the smartest plan if owners want to pass along the wealth of the business to future generations. Like Mark Schmucker, you do not need to won 51% to have control of the company and private equity gets the mystique of family businesses."

Globe & Mail Tells How to Get Ready for Investors

Are you getting ready to find investors to partner with you in your family business? Listen to this podcast on Report on Business, Globe & Mail, with J. B. Loewen, author of Money Magnet and a partner with Loewen & Partners.

Private Equity Includes Dragons' Den

Dragons' Den, the CBC's hit reality TV Show, is a glimpse into the world of private equity. You can get a good feel for how private investors react to entrepreneurs relying on attracting their funding.

Private equity actually means privately held money - money not invested into the public markets which are open for all. With the IPO being a bad choice due to to the onerous costs of SOX and the bubbles now happening more frequently and with larger ups and fast disappearing "pops", private equity is finding itself to be a welcome option for business owners.

Jacoline Loewen, author of Money Magnet and partner with Loewen & Partners, does some blogging on Dragons' Den and points out the business lessons to learn as these millionaires react openly to entrepreneurs.

Canadian Venture Capital Conference Coming Up

Read the details about the great conference coming up in Toronto, October 12th, held by the Canadian Venture Capital Association -CVCA.
The topic is about going global and Canadian companies are discovering that they can take their strong products to other countries and do very well. It's not just Four Seasons who can go for the top.
Many of the Canadian private equity funds know how to help company owners grow their companies and find success outside of Canada. While working at Loewen & Partners, I have been surprised by how many Canadian companies are already deeply engaged in other countries with more than 80% of their sales from outside of Canukland. We are gaining confidence and it is great to be part of building the Canadian economy.
The cost of the conference is under $300 and it is worthwhile having the chance to be inspired by other entrepreneurs and bump into many of the fund managers themselves.

What Does the Crisis Mean for Private Equity?

Private Equity has passed through a Golden Age, but will now spend a year or so in "purgatory" before entering an even greater period of expansion, or "Platinum Age," according to David Rubenstein, co-founder and managing director of The Carlyle Group, the Washington, D.C.-based private equity firm with more than $70 billion in assets.
In a keynote address at the 14th annual Wharton Private Equity and Venture Capital Conference titled, "Harnessing the Winds of Change," Rubenstein said the credit crisis triggered by subprime lending has brought the growth of private equity investment to an abrupt halt.
When credit markets dried up, large banks had already committed to $300 billion in private equity deals, Rubenstein noted. About a third of that value stayed on bank balance sheets, although much of it has already been written down, he said. Another third was renegotiated with tougher terms for private equity sponsors. For the final third, the deals were never completed and are now the subject of litigation or break-up fees. "For the next year or so, we will be in purgatory. We will have to atone for our sins a little bit," says Rubenstein. As head of Carlyle, one of the biggest private equity players in America and the world, he also believes that the next wave of private equity will be stronger than ever and will start in early 2009.
In Money Magnet, this theme of the breakdown of the big, public markets and the build up of private equity partnerships as an alternative to the Wall Street and Bay Street is discussed in depth.
"It is becoming more pressing, says Jacoline Loewen, "that private equity managers do a better job of explaining how they can improve companies and deliver strong returns that lead to increased employment and economic expansion overall.

Money Magnet Lifts the Veil of Secrecy from Private Equity

"I owe a great deal to the financial investors who gave me their time to tell their stories," said Jacoline Loewen at the launch of Money Magnet. "They lifted the curtain of secrecy that the media love to discuss."
Jacoline says she learnt three things:

First of all – the finance people are generally wonderful. They are dolphins rather than sharks and they love business. The partnerships created by private equity deals I have watched unroll, really do create jobs, pay taxes and build Canadian companies out to the global market.

Secondly: the people most likely to benefit from private equity – business owners – tend to be the people who know the least about this type of financial partnership. Private equity partners get a company focussed on transformational growth and allows all sorts of ways for owners to get money out of their business to pay for retirement, family trusts. Anyone relying on traditional bank debt – it’s just like smoking – you are stunting your growth.

Thirdly: private equity is the way for Canadian companies to survive this global market.
When Ace Bakeries recently sold to an American private equity firm, I called Linda Haynes and asked her if she had looked at any other options – such as Canadian private equity. She said no. As with most entrepreneurs, her passion was bread not the money of the business.

I wrote Money Magnet to try and get Canadian business owners like Linda Haynes to see that Canadian money is here and that instead of selling out to the Americans, we can build iconic Canadian brands that go out to the world – like IMAX, Lululemon, Cirque du Soleil, skidoo, Four Seasons. All of those began their journey of growth when the business owner decided to put their ego on check and say “I can move over and share the steering wheel. I can bring in private equity.” And by the way, the biggest PE deal in the world’s media this year was Canadian, not the KKRs of America!

The hardest part of writing this book was getting a shared definition of what the heck is private equity. I asked Angels, VCs and professional fund managers. All had different answers. But the best was “Private Equity is the energy brought to the company”. That energy is what is priceless and very hard for outsiders to understand. Today in this market, as we see the East pick up the baton from the West’s economy, it is scary times. But remember, the last big smack down in 2000 was when Lululemon, Google, Paypal and countless others were working with their private equity partners. There’s lots of money out there for you.

Takeover Fever in Small-Cap World

A modern day investment banker and Jean-Jaques Rouseau have very little in common, but they would both agree that all is in flux.  Last week every investment bank in America went the way of Yankee Stadium.  The movement of the markets finally overwhelmed all of the banks and they have all sought the security and stability of commercial banks.  Private equity funds have found it difficult in the last few weeks to close deals, most notably Private Equity Partners' close of target Informa PLC.  Reports suggest that banks were not able to provide enough senior debt to leverage the deal.  A familiar story.  

According to this report from the Financial Post, small to mid-market firms continue to aggressively pursue buyouts.  These deals require far less debt to execute and can rely more on mezzanine financing to structure a deal while securing the required returns.

The Day the Baton Passed

Michael Power is with us today as guest blogger. He has a take on the world economy that every North American should understand:

As a sporting spectacle, the Beijing Olympics exceeded even the advanced hype. But, as the images fade, we should remember that this contest was not the only one of Olympian proportions to be playing out in the world. There is also an economic marathon taking place between runners in the West and those in the East, a national relay race that will eventually see the baton of economic primacy being carried – symbolically that baton having been dropped by the US Men’s and Women’s Teams in the 4x100m relay heats in Beijing – by China. The final medal table of the 29th Olympiad may yet come to symbolise the start of this hand-over process.

Final Medals Tally
1 China
2 United States
3 Russian Federation.
4 Great Britain
5 Germany

Many in the West probably still think – and the lazy love of the familiar more than brute logic is often the father of such thoughts – that the West’s current economic malaise is nothing more than a very bad case of cyclical flu. In such a context, aspiring Western politicians will continue to peddle promises to build a better tomorrow: witness Barack Obama and his “Yes, we can!” pledge. By contrast, few will dare articulate just how structurally passé the West’s current model might soon be and therefore just how difficult delivering on those electoral promises could become.

Overriding the forebodings of that small clique of Westerners not in denial, the ‘yes we can’ apologists for the West still dominate the airwaves of CNBC and Bloomberg. Those daring to suggest that something more seminal might be happening are usually dismissed as the economic equivalent of doomsday merchants wearing “End is Nigh” sandwich boards.

I believe profoundly that the essence of what makes mankind such an optimistic species is our dogged faith in the idea of “hope springs eternal”: indeed Obama’s book captures this determination in its title, “The Audacity of Hope”. For it is humanity’s pre-disposition to dream of a better tomorrow that is the source of that river of human endeavour that irrigates the seeds of a brighter future. And so powerful can be this confidence, it can cut gorges through the granite of counter-logic in forcing its way to the greener pastures of progress. But hope alone cannot guarantee progress and the wellspring of industriousness that feeds the West’s river is not nearly as plentiful as it used to be. Instead, today’s sweaty optimism rises most abundantly where the sun also rises: in the East.

In this game-changing world, a few commentators – George Soros, Marc Faber and Jim Rogers – have suggested that the West is in its worst financial crisis in 30 years precisely because the economic baton is being passed from West to East. As the great economist, Joseph Schumpeter, might have noted, perhaps we are at a crossroads in history where Western destruction is now being offset by Eastern creation. In our far from decoupled world, the West’s economic yin cannot change without impacting the East’s economic yang, and vice versa. So as one zone waxes, the other wanes.

On the one side, the West (and especially its Anglo Saxon heart), by living way beyond its means on the chimera of easily available credit, ever rising household indebtedness and ever increasing fiscal and current account deficits, has enjoyed many decades of prosperity. And, even in the wake of the credit crunch, most Westerners still believe that this model of prosperity is both soundly-based and sustainable. The last year has proved to us it is not.

On the other side, the East (and especially its Chinese heart), by living well within its means with a high domestic savings ratio (45% in China compared to a negative rate in the US), regularly running current account surpluses and maintaining high levels of foreign exchange reserves (the Greater China Club – China, Hong Kong, Taiwan and Singapore – now have over $2.5 trillion) has deferred consumption today and, by funding investments from these savings, set about building a better tomorrow. Indeed, the same time, a not insignificant portion of the East’s savings have also been diverted to plug that savings gap in the West and especially in the US.

By postponing consumption for well over a decade, the East’s hoped for tomorrow has now started to materialise in a better today – Beijing’s emerging splendour is surely evidence of that! And despite the desire by some of the East’s Old Guard to extend its era of abstinence, many Asian governments are now encouraging their constituents to enjoy a bigger share of the fruits of yesterday’s labours. This suggests that the Asian model – one based not upon self indulgence but rather self denial – may ultimately not be sustainable either.

The near mirror-image of these two faces of post-1989 global economic development – one built on using debt to consume tomorrow’s income today, the other built on using today’s savings to build an income-rich tomorrow – was a convenient liaison whilst it lasted, but eventually the complementarities of this so-called Bretton Woods II arrangement were outweighed by its contradictions.

Destabilized by the detritus of the past year’s credit crunch, the unstable equilibrium that arose from this fantastical arrangement has started to implode. Whether the West overindulged or the East eased up on its self-denial is a moot point. Either way, both ways, the one side no longer got all it wanted from the other: perhaps the East saw the West’s thirst for its exported manufactures being slaked, or perhaps the West saw the East’s demand for its debt instruments decline.

As one side pulled back, by definition, so too did the other: the credit that the East extended to the West had been recycled by the West to buy products from the East, thereby creating arguably the largest vendor financing scheme in history. Reduce the flow of one and you necessarily reduced the flow of the other.

And the result of this reduction? The West in particular is enduring the cold turkey shakes that follow the quick withdrawal of the amphetamines of easy credit. For its part, the East is being forced to move beyond an era where “we make TVs and Americans watch them” to one where they too are tentatively starting to become tele-addicts, which is to say ‘consume’.

Invariably a Newer World is emerging, one where the Western consumer will no longer be able to live off the back of the Eastern saver. And this world will be one where the Western consumer, sans that Eastern credit, will no longer be able to afford an ever increasing standard of living, at least until that consumer has broken his addiction to debt and rediscovered the magic of saving.

Not so in the East. By spending more and saving less, the make-up of Eastern economic growth will change, even slowing from its current plus 10% levels. But, given the scale of reserves the East has squirreled away relative to the emptiness of the Western larder, the East has the wherewithal to keep its GDP growing, its currencies strengthening and its wealth accumulating and do so far more rapidly than will henceforth be possible in the West. Thus will play out the particulars of how the baton of economic leadership will pass not between hands but hemispheres, from West to East. Indeed, China will overtake the US in terms of industrial output next year.

History, with its tidy desire to pinpoint such watershed events, may yet decide that the time and the place when this baton began to be passed was 8pm on 08.08.08, as the Olympic Games opened in Beijing, China.

Where were you when this historic moment happened?

What Every Business Owner Should Know

Why is it that smart business owners resist the idea of bringing in investment partners even if those partners will make them far richer than they could believe possible?

What are the four questions every investor will ask as you present your business and the money you will need to take it to the next level?

What are all the forward thinking owners lookin ginto private equity right now, before they need to retire?

Find out the answer at this radio interview broadcast by the show called Small Business, Big Ideas as David Cohen interviews Jacoline Loewen, author of Money Magnet and partner with the private equity investment company Loewen & Partners.