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Business Observer Friday, Feb. 8, 2019 8 months ago

How to woo big-time investors

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Know your worth and be confident, says an investment banker.
by: Brian Hartz Tampa Bay Editor

Tampa Bay Lightning owner Jeff Vinik recently led a $10 million round of investment in Omnivore, a high-tech restaurant management firm that got its start in Tampa before moving to Silicon Valley. In St. Petersburg, Kahwa Coffee continues to attract funding, raising nearly $6.5 million in 2018, primarily from local sources. Other area companies have succeeded in raising funds — even in a region not known for venture capital. 

“Concisely articulate the merits of the opportunity, the economics, the risks. And know your numbers very, very well." Mike Faraone, senior managing director at Skyway Capital Markets. 

What does it take to lure investors? Mike Faraone, an owner and senior managing director at Skyway Capital Markets, a Tampa-based investment firm, offers some insider tips.

First of all, Faraone says, transparency is everything. “You want to make sure you’re not keeping any secrets, because eventually they get found out. If they get found out later rather than sooner, that really hurts your credibility," he says. "You’re much better off saying there are issues and the risks are mitigated by X, Y and Z.”

Properly preparing your pitch for investment can boost your chances. “Concisely articulate the merits of the opportunity, the economics, the risks," Faraone says. "And know your numbers very, very well. Have a budget, a pro forma, and have it be realistic, not the unrealistic ‘hockey stick’ graph.”

Another strategy? Get creative with structure.

Faraone once helped facilitate a deal that saw a local loss mitigation company sold to a publicly traded property and casualty insurance company for 10 times EBITDA, because the seller — who wanted to stay on and run the firm as a subsidiary — was willing to jettison the accounts receivable and sales and marketing departments as part of the deal. “I'd never heard of somebody in that space trading for that multiple,” Faraone says. 

Intangible qualities like conviction, confidence and self-belief can also go a long way toward closing a deal.

“If you’re raising capital,” Faraone explains, “you might say to the investor, ‘Well, I’ll be the first loss piece. I’ll put new capital into this transaction and I have to lose all of my money before you lose any of yours, because I’m that confident; I’ll personally guarantee it.’”

Another key: know your value. An outside, third-party valuation is critical if business owners want to have leverage in negotiations with powerful buyers or investors. “Most business owners don’t know what their business is worth," Faraone says. "When we talk to them, subjectively, most of them think it’s worth less than it is.”

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