What price advice?

Entrepreneur, July, 1997 by David R. Evanson

Entrepreneur Gerard Powell attributes his success to a simple strategy: Take a product or service that is sold only to the wealthy and make it affordable to the masses.

Following this formula in the early '90s, Powell parlayed a modest investment into a small fortune with his Y-Rent program, which allowed consumers to buy homes for no money down, with monthly payments not much higher than their rental payments.

So in late 1994 when Powell learned that cosmetic surgery was something only very wealthy consumers underwent, a light bulb went off in his head. He joined with partners Charlie Lynn and Vincent Trapasso in their fledgling venture, Cooperative Images Inc., which markets elective surgeries on behalf of physicians.

"The key to the market was making the procedures affordable," says Powell. Through elaborate financing mechanisms and fight credit controls, Powell reduced the price of some surgeries to just $38 a week.

But to put the business over the top, Cooperative Images wanted an infusion of capital to' ramp up marketing efforts and increase the number of physicians under contract. While Powell was certain of his ability to create a sales and marketing dynamo, he was less certain in the arena of high finance. "I began to question exactly what I needed," says Powell. "Was it just capital, or was it something more?"

What Powell had hit upon was the great divide in early-stage financing. Did he need a passive investor who would simply deliver a check at the closing table? Or did he need a more active investor - sometimes referred to as a value-added investor - who would help guide the company to the next growth plateau?

The distinction is vital to consider. After all, some entrepreneurs don't appreciate advice at every turn from what appears to be a meddling investor. At the same time, a business owner who wants help from a new shareholder and doesn't get it might flounder his or her way into bankruptcy.

For Powell and Cooperative Images, these considerations were more than academic. Offers of capital came from two investors occupying opposite ends of the spectrum in terms of their involvement in the company - and left Powell searching for the answer to his happy dilemma.

* ATTRACTING OPPOSITES

One of the potential investors was Richard Gwinn. Gwinn's company, Radnor, Pennsylvania-based The Abbotts Organization, has been buying, selling and investing in companies for more than 20 years. Gwinn's approach to early-stage investing is hands-on; he not only invests in companies but also offers strategic management services.

The other potential investor was a much larger competitor from Powell's home-building days. This investor had enjoyed substantial success but, in Powell's opinion, didn't have as much knowledge of or connections with the capital markets Powell felt would be critical to Cooperative Images' long-term success.