What do you think of upfront fees?

The Private equity and Venture Capital Group has been running the longest discussion on Linkedin on the hot topic of paying up front fees for capital raises.
Here is one comment that caught my eye"

I've worked with the CEO's and BOD's of many companies in their efforts to raise series A, B, or C capital. The issue of upfront fees normally arises when efforts to raise angel or VC funds have been exhausted and companies reach out to the alternative capital markets. As we all know during the last 18 months the traditional sources of capital have become scarce.In the alternative capital markets, it is common practice for the investment finders to charge upfront fees and generally these are large sums before beginning any work.

That being said, I have recently, through close long-term contacts in the VC industry, been introduced to an investment capital finder who does a great job raising capital and unlike investment capital companies like Bain, Goldman and others who charge large upfront fees. Loewen & Partners does not. 

Rather they  take a strategic partnership approach with company CEO's who have a business model they think can be executed successfully by charging a modest monthly cost share during the capital raise period. They don't want to make money on the front end but rather taking a strategic partnership approach with their clients, money is made on the back end of the deal when the capital closes escrow.

Loewen & Partners' business model makes complete sense to me as a outsider and business person. They have some skin in the game utilizing staff to zero in on sources of capital that would be a good match with the entrepreneur's business model. And with the cost share model , the entrepreneur has skin in the game preventing him/her from window shopping for money and then just walking away when the capital sources are brought to the table to negotiate the terms sheet. 

In my opinion, If you can find a similar capital finder who will do a cost share approach during the raising period, rather than charge large up front fees, you will have a win/win approach in raising your capital needs.

Peter's Question

“If the company disappeared, would it be missed?”

This question was posed by the thoughtful Peter Barlas, a portfolio manager at KJ Harrison, a company that invests high net worth individuals’ money. Peter was taking us through his logic in picking companies for this next stretch of market which is going to have "S" curves with oil slicks galore. 

If you want to know his stock picks, which I thought to be shrewd, you can get hold of him at KJ Harrison.

Now, what about you, what companies would you miss? Philip Lieberman, KJ Harrison, told me he would miss Gillette, but not Crate & Barrel, which is why retailers are falling from favour currently. For me, Apple would be a big black hole; their podcast feature alone has changed the way I get information.

If you are considering attracting money to your business, Peter’s question is a good one to ask each and every day. Would your company be missed? If not, why not? What would be the much requested features? That could add to your valuation.

What happens to companies with private equity?

Financial Post's John Turley-Ewart discusses private equity with author and entrepreneur Jacoline Loewen.

Watch the video
http://www.youtube.com/watch?v=nnfT3110upo&feature=related

Family businesses can grow to become major forces in their economies.

It is tough to keep a family business in the hands of the family, yet there are options. Private equity likes family businesses as other companies prefer doing work with them and customers like the feel of a family brand over a corporate one.
Very few large family businesses thrive beyond the third generation. Those that do, find ways to run themselves professionally while making the family happy. Private equity can play a huge role in keeping family legacy but the business moving forward profitably.

McKinsey and Co did research on how family businesses have managed to evolve and survive in various countries.

In advanced economies, as well as in emerging markets, most companies start out as family-owned businesses. From their humble beginnings, driven by entrepreneurial vision and energy, some have grown to become major forces in their economies. Indeed, this still happens not only in emerging markets, with their chaebols in South Korea and grupos in Latin America, but also in North America and Europe, where relatively young family-owned businesses such as Wal-Mart Stores, Bertelsmann, and Bombardier, to name just a few, have become front-runners.

But family-owned businesses—companies in which a family has a controlling stake—face a sobering reality: the statistical odds on their long-term success are bleak. In fact, a number of studies, taken together, suggest that only 5 percent continue to create shareholder value beyond the third generation. This statistic should come as no surprise, given the business challenges any company faces in increasingly competitive markets, to say nothing of the difficulty of keeping growing numbers of family shareholders committed to continued ownership. One kind of risk for these businesses comes from the generations that follow the founder, whose drive and business acumen they might not match, though they may insist on managing the company.

Jacoline Loewen, partner, author of Money Magnet, How to attract investors to your business.

Top 50 CEOs list has only 15 out of 50 MBAs - what gives?

The MBA does bring a great deal of value in taking you to the next level in thinking and giving you a instant network of equally competitive and performance driven people. It is always worthwhile revisiting the objective of obtaining an MBA. Is it to get you on the top 50, highest performing CEO list or to give you an introduction to management? 
Roger Martin, Dean of Rotman, is one of the leading edge leaders of business schools, I believe, and we are lucky to have him here in Canada. In the USA, here are thoughts on the MBA by one of my favorite out of the box investment advisors - Check out Clemens Kownatski' blog for more:

MBA Reality Check: "Harvard Business Review just published: The Best-Performing CEOs in the World

Very interesting to see who is on that list and even more interesting to learn what their backgrounds are.  As a Business School graduate, I often wonder about the merits of an MBA degree, considering the time, effort and substantial capital that went into the education.  Going through the list of  Top50 CEOs, I noticed that only 15 out of 50 (less than a third) had a formal business education.  Although I still consider business school one of the best investments I ever made, one has to wonder what these Non-MBAs know that isn’t taught in business school and whether or not that skill can be taught at all? Next time you consider an investment, you may wonder what makes people like Steve Jobs such an “out of the box” thinker; perhaps the same thought process could be used when analyzing your next investment."

You can read more by Clemens Kownastski's latest issue of Market Insights, also available at: http://fxinvestmentstrategies.blogspot.com/

As always, please email any questions to Clemens at: info@fxistrategies.com.

Financial Post interview with Jacoline Loewen: http://bit.ly/8bDKmJ