Capital Marketers

Lemons From Lemonade

The experience was not lost on Suskind. He used what he had learned in financing Primo Piatto and a previous business to form International Technologies & Finance LLC (ITF), a New York City firm that offers a variety of corporate financial and investment banking services similar to what Suskind once sought. And Suskind has prospered, raising some $600 million for emerging companies since forming ITF. But his experience brings up an interesting question for today's entrepreneurs: When the time comes to raise expansion capital, should you hire outside experts or go it alone?

The great divide in the financial markets has to do with the type of capital you're raising. Pure venture capitalists and merchant bankers commit their own capital (or the capital of others over which they have discretionary authority) to a deal. Since they have the power to write a check, additional expertise may not be necessary to complete the deal.

The question gets a little fuzzy when looking at how investment bankers and financing consultants operate, however. Investment banking firms often raise money from a pool of investors who are their clients. To do this well, they must sell the investors on the merits of any particular deal. A good financing consultant does the same thing. In fact, a really hot financing consultant might be able to do this better than an investment banker, and in this regard may be more effective at giving you more alternatives and greater access to capital markets.

But when a financing consultant promises to structure your deal and find the capital you need, are the fees--often a monthly retainer and some kind of equity stake in your company--worth it?

The answer is yes, but a qualified yes. Suskind likens using a financing consultant to dealing with an independent insurance agent: "With intimate knowledge of several carriers, an independent agent can often do a better job of finding insurance than clients can on their own," he says.

To wit, says Suskind, there are tens of thousands of companies each year that seek venture capital and have absolutely no chance of succeeding. "It's not that they are not viable companies," he says. "The fact is that venture capital is an extremely defined source of capital for which few companies qualify. And many people are shocked to learn that collectively, U.S. venture capital firms fund perhaps 1,000 new companies each year, at best."

On the flip side, however, there are thousands of other financing sources, many of which are much more viable for emerging or early-stage companies. "If someone can point you in the right direction, package your company so it's appropriate for and attractive to these sources of capital, and get you in front of the decision makers," says Suskind, "they are providing an invaluable service." Especially, he says, when looking in all the wrong places might cause an entrepreneur to run out of time and money and scuttle the venture altogether.

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This article was originally published in the October 1996 print edition of Entrepreneur with the headline: Capital Marketers.

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