Venture Capital Raising

[gordon2007]

I have nothing contructive to add to this thread (do I ever?).

I'm just writing to say I'm finding it quite interesting though. I'd love to know how you go with this though.

 

[trainspotter]

Thanks for the rhetoric doctorj.

If a million dollars equity of my own money is a hobby to anyone, then I am guilty. Like I have stated previously, there are no projections. NONE, ZERO, NIL. It is all bluesky stuff. Ratchet levers with 35% / annum with share options is not what I was asking for.

I originally asked if anyone has experience in this kind of funding and could point me in the right direction of someone with the knowledge to further the company in this direction. Either by a website or by first hand knowledge.

I can theorise and soothsay all you like on % return and exit strategies and hostile takeovers of the board via 10% share blocking etc. etc. et al ad infinitum but it would not be the correct information. I have watched many a company raise capital either by ASX listing or dragging in partners with plenty of capital input but no managerial skills previously and quietly chuckled to myself as they resembled a bug on a windscreen. The first thing to go through their brains was their rectums.

To also timeframe a 4 year programme after I have advised that it takes 8 years to return a profit due to the nature of pearl farms(growout of spat/oysters/seeding/farming practices to not stress the bivalve mollusc) is a little exorbitant on the scale of clock watching at best.

 

[doctorj]

Guilty as charged - I don't know the first thing about pearl farming. I do however know a little about private equity and was hoping to give you a brief on the issues you may face going forward.

I also don't know what the market is like for financing pearl farms, but I do know the days of really easy money in any industry (except perhaps renewables) are long gone. No longer are PE firms desperate for a place to park their cash and willing to sacrifice on structuring to make it happen.

To put it in comparison, I've just completed a PE deal where the company will not be profitable for 7-8 years, but there's an exit mechanism that kicks in after 3 and more complex drags that will kick in after 5 in certain conditions. So it can be and is done.

Expect it to cost you no less than 3% to raise money.

 

[doctorj]

So rumping and pumping the existing board of directors and wiping out any semblance of the corporate structure is their game? Waltz in with a fist full of cash, takeover management practices and flog the lifeless carcass to the highest bidder is what they are all about, eh?

No thank you, not on my watch they wont be. Would sooner offer 10k parcels of "A" class shares with the fringe benefits of jewellery and loose pearls PLUS % return as well as free trips to the pearl farm before I will let that happen!

And yes, PE is interested in selling the business for a profit. It's how they make their money. They're not pearl farmers, but professional investors.

 

[trainspotter]

Now we are talking my lingo doctorj !

That is what I am more looking forward to reading. Now that I have a little of your knowledge divulged when and if I do approach a PE firm I can brace myself with the jar of Vaseline and reach for my toes EXPECTING these kinds of mechanisms to be thrust upon me.

Current market for funding pearl farms (or any kind of aquaculture) is meagre at best due to the mob of FATHER RAPERS who have polluted and corrupted the waters before me.

3% is within guidelines of expectancy for capital raising of this kind.

 

[trainspotter]

I have nothing contructive to add to this thread (do I ever?).

I'm just writing to say I'm finding it quite interesting though. I'd love to know how you go with this though.

Pull up a chair, put your slippers on and warm your soul agains the fire, brother. I will advise all and sundry once motion of discovery has been extrapolated.

 

[doctorj]

3% is pretty cheap. Given the amount of money is small, it wouldn't surprise me if it was 8-10%.

The key thing to realise is that PE don't want dividends and they don't want to own a pearl farm. They want to generate a return on equity to their investors in a relatively short time frame. As they have the money, it's fair they impose things like ratchets and drags on you to ensure they have the stick to hold you to your own forecasts and to ensure they can get out.

If you want someone to hold for 8-10+ years and be happy to receive dividends, get a pearl farmer to invest.

 

[skc]

So rumping and pumping the existing board of directors and wiping out any semblance of the corporate structure is their game? Waltz in with a fist full of cash, takeover management practices and flog the lifeless carcass to the highest bidder is what they are all about, eh?

No thank you, not on my watch they wont be. Would sooner offer 10k parcels of "A" class shares with the fringe benefits of jewellery and loose pearls PLUS % return as well as free trips to the pearl farm before I will let that happen!

That is too dim a view. A lot of VC firms are run by ex-entrepreneurs and love to see people succeed. The last thing VCs want is a demotivated owner. VCs offer much more than money - they bring in management expertise and connections in the industry. Basically they show and open doors for businesses that are otherwise not available.

I don't know much about peral farming but my guess is it is like a Managed Investment Scheme. Big capital cost up front, wait for your product to grow, and at harvest time sell at profit.

The VC deals I am familiar with have fairly different characteristics. A good deal is one which is scalable, or has a unique proposition. A new potential drug, a new industrial process, Boost Juice are examples where the business is readily scalable and has a clear exit strategy.

May be it's my lack of understanding but I don't see how the pearl farm fits in. Unless you have a unique practice that can be rolled out across the industry? Or you see the pearl farm industry ripe for consolidation?

If not, I truely don't think VCs would be interested, regardless of how good a business it is.

A VC once told me that, for every 10 deals, 1 will be a star, 2 will be OK, 3 will go no where and the rest are living dead or actually dead. So they really need the star to pay for the dead ones. Just like trading.

P.S. If you don't mind sharing how much investment are you looking for?

 

[skc]

3% is pretty cheap. Given the amount of money is small, it wouldn't surprise me if it was 8-10%.

Never forget the real cost is the equity in the business you are selling.

Early money is the most expensive.

 

[trainspotter]

skc wrote "I don't know much about peral farming but my guess is it is like a Managed Investment Scheme. Big capital cost up front, wait for your product to grow, and at harvest time sell at profit.

Pretty much sums it up. The pearl farm I own is not offering any "new" techniques that will revolutionise the industry. There is no "best practice" that I can roll out across the existing corporations. The "unique" quality that we have is the PRISTINE environment that the pearl farm is located in. Without giving too much away it is one of only two places in the world. The other place does not grow pearls, by the way. The second stage is not only to grow pearls but to develop tourism. Similar to the Great Barrier Reef in it's model.

You can PM me and I would only be too glad to provide you with the information on $ amount required.

 

[trainspotter]

Thanks doctorj for the advice.

I will buy me a larger jar of Vaseline if fund raising is going to cost 10% initially !

 

[skc]

It is completely clear to me that the VC line of thought is just red herring. What you need is a MIS manager who can structure a scheme for you. This link provide some names for your research.

http://www.agrifundsonline.com.au/articles/aag_manager_ratings.pdf

If this is too much, there may be certain brokers out there who has a regular network of investors who seek alternate investment. Not sure what the right search term or keyword is, however.

To be even less sophisticated, just host a tupperware-party type function with a bunch of doctors / lawyers / bankers and get their credit card details on the spot.

 

[trainspotter]

skc - Not sure VC is a red herring. Maybe the terminology I am looking for is incorrect? Thanks for the link and will follow up on the referral. Thank you.

Will google rummage for the brokers with alternate investor clients.

The tupperware party idea is not what I had in mind. Too many people wanting a slice and no coherent direction. Suddenly EVERYONE would want to have a say in management and how THEY could do it better. No thanks.

 

[doctorj]

It is completely clear to me that the VC line of thought is just red herring.

I would tend to agree. PE isn't a free lunch and it's aimed at people looking to grow businesses much faster than they otherwise would.

Before even thinking about what form of financing to get, if I were you, I'd be paying for some advice about the costs/benefits/availability of each. Paying for advice to construct an information memorandum is putting the cart before the horse...

 

[trainspotter]

Thank you doctorj again for the advice.

Will endeavour to find that certain individual who can give me such advice as to what kind of funding is going to be more suitable than the other in my given situation. Thanks again.