Open To Consultation

Entrepreneur, Oct, 1999 by David R. Evanson, Art Beroff

Where to turn when your money-raising dilemma is more than you can face alone

William Tuorto, founder and chair of Global Eco-Logical Services Inc. in Atlanta, accomplished more during the first six months of this year than many entrepreneurs achieve in a lifetime. While most 29-year-olds are building Internet firms by cobbling together bits, bytes and strategic partnerships, he has staked his claim in the gritty business of solid-waste management.

Global EcoLogical's genesis was actually industry consolidation among the big boys. "Because of the mergers," says Tuorto, "they got in what some could argue was a monopoly situation. They had to divest, and that opened the mid-Atlantic and the Northeast regions for us."

In rapid fire, Tuorto went on a little acquisition binge of his own. Starting in December 1998, he lined up seven waste management companies located primarily in New Jersey, Ohio and Pennsylvania and bought them all in a single transaction, allowing him to provide near complete vertical integration from hauling to landfill operations to waste treatment. Six months later, he bought two more, giving him a company that, from a standing start, had grown to $10 million in annualized revenues. But Tuorto isn't done. "The end game," he says, "is to build a $200 million company that is 100 percent vertically integrated by 2001."

Tuorto's financing plan wasn't any easier. The aggregate purchase price of the initial companies was $7 million, which was financed with cash, plus notes that were convertible into shares of Global Eco-Logical. To make those shares the kind of currency sellers would accept, he had to get cash into the company and get it public, which he did with the help of New York City financing consultant Source Capital Partners. "The transaction was complex, with lots of moving parts," says Tuorto. "To get it done, I knew I needed help."

DO I NEED HELP?

Unfortunately, when it comes to raising capital, particularly equity capital, many entrepreneurs aren't as sure of themselves as Tuorto was. The business of finance is so intimate, and so tied to their own wealth, many entrepreneurs try to raise money on their own when they should seek outside help.

According to Source Capital founder Steve Glazer, who has 20 years of experience in securities and investment banking, raising capital relies heavily on three ingredients. "Two of these - contacts and expertise - can be acquired by entrepreneurs fairly easily," he says. But the third is the one that bodes well for his line of work. "Manpower is the real issue. Entrepreneurs must ask themselves: 'Can I do this myself? Can I do two full-time jobs at once?' And the truthful answer for most people, if they are running a growing company, is no."

Another acid test to take when considering whether you need the help of a financing consultant is the amount of capital you need to raise. The majority of firms, including Source Capital, seek companies raising $3 million and up, for reasons chiefly related to compensation. Glazer says if you're raising $1 million or less, you're probably on your own. This doesn't mean you won't be able to find someone to help you; it just means it's less likely because anyone who is skillful enough to raise that amount of funding for a private company will be spending their time working on much larger deals.

And if you're in that awkward range of $2.2 million or so? "[The owner] typically hasn't done a complete enough analysis of the future," says Glazer. "What we find is if a company needs $2 million today, it will almost always need $5 million more next year."

YOUR PEDIGREE, PLEASE

If you decide to engage a financing consultant, be prepared to trust your instincts when deciding which one to hire. Most likely you can get a reference from an attorney, an accountant, or the last banker or venture capitalist who turned you down, but financing consultants are typically a breed unto themselves with no codified professional standards. In fact, anyone can hang a sign and start flogging deals. Here are some items to consider as you interview your would-be consultants:

* A good match. First, ascertain whether the consultant helps finance your kind of business. "Most consultants will tell you upfront if there's not a match - but not all," says Glazer. "Avoid the one who wants to learn how to raise capital for your kind of business and is going to go to school on your deal."

* Good references. The most important criterium is the consultant's success with previous engagements, says Glazer. "If the consultant can't [give you] three clients he or she raised money for in the past year who can talk about the value the consultant brought to the table, you don't want to hire this person."

In addition, ask for references from assignments where the consultant did not succeed. "Anyone who has been in the business awhile has had assignments that didn't result in a closing," Glazer says. "You have to figure out why."

Did the consultant lead the entrepreneur to investors and a proposed investment that the entrepreneur turned down? Entrepreneurs are frequently unrealistic about the value of their businesses and the terms and conditions investors want, resulting in unrequited deals. These aren't as much of a concern as if your would-be consultant is reportedly difficult to work with, unfocused or slow to get off the dime.