What Price Advice?

When looking for financing, consider the expertise a value-added investor can offer.

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 tight 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.

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This article was originally published in the July 1997 print edition of Entrepreneur with the headline: What Price Advice?.

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