Although the world is home to hundreds of different languages and cultures, the words business, capital and profit are understood everywhere. That's a good thing for Chris Donato and John Rapchinski, co-founders of ReMark Partners Inc., who found that their road to potential riches began overseas, even if it doesn't end there. In fact, they recently secured funding for their company from investors overseas, demonstrating the significant opportunities for capital formation that U.S. entrepreneurs can find outside the United States.
Donato and Rapchinski, both 30, built their Norristown, Pennsylvania-based referral solutions company back in 1999, initially funding their Internet creation with personal savings. Although their vision called for a suite of business solutions, their first product, JobTag, drew on their background in recruiting. "JobTag is an employment referral solution that enables companies to use their employees, vendors and anyone with vested interest to [get referrals] through our company," notes Rapchinski. "Most of our clients are small to mid-sized businesses, and they've been focused on technology so far. However, we're open to all businesses."
The Internet was at its hottest back then, and capital came from individual and institutional venture capital investors. And though the stock markets began to show a fissure in April 2000, there was still enough momentum left for ReMark to close a $1 million deal that May. The proceeds were earmarked for working capital, product development and the addition of key personnel.
State Of The Market
That Was Then, This Is Now
But what a difference a few months make. Tech stocks soured and share prices for technology companies sank fast, making the business and financing climate much cooler for young companies in that sector. Or was it? That depends on your perspective. Outside the United States, capital-raising dynamics were much different during the latter half of 2000, and investors remain eager for access to new deals. So ravenous is the appetite overseas for U.S.-grown ventures that ReMark's news release about its May funding round appeared on a radar screen at venture firm Network Asia in Hong Kong- and led to a meeting between the two companies in San Francisco and ultimately a $1.5 million financing deal in December 2000.
That's good news for Rapchinski, who says Network Asia helps put ReMark in an advantageous position in the market. He says, "What they can provide in the way of experience and business connections really made them a natural partner."
According to Michael Roy Fugler, director of corporate finance for I-Bankers Securities, an investment banking firm in Dallas that concentrates on raising overseas financing for companies around the world, there are several reasons why international markets are now productive hunting grounds for U.S. investors. "First," Fugler says, "looking for capital outside the United States is the road less traveled. Here you might have 30 players in a single niche, all focusing on the same investors. But once you start looking in foreign jurisdictions, your competition is minimized, if not eliminated.
"Second," Fugler says, "angel investors, which were rare in overseas markets before, are emerging en masse." Fugler's firm focuses on institutional investors in Europe, but he says the activity there indicates a change in the capital markets on a global scale. "Estimates indicate that during 1999, some $25 billion was invested in 11,000 companies in Europe," notes Fugler, "which amounts to a 94 percent increase in investment in the technology sector and an 89 percent increase in capital committed to start-up deals in 1998. We've also seen an upward trend in 2000."
Fugler says such astounding figures mean a much richer target environment. "In Munich, for instance, many firms did not have venture capital arms 18 months ago," he says, "but now they do. They've seen the Microsofts and the Intels flourish into budding technology companies, and they feel left out. Although the bubble has burst, and there is [now] an emphasis on profits, there is still a strong desire to participate in the New Economy."
The dearth of entrepreneurs overseas vs. their abundance here is another factor. "In Europe, and globally, you have a stimulated market that is entrepreneur-enthused without a lot of options," says Fugler. "Therefore, the capital overseas looking for U.S.-style opportunities must focus on the U.S. marketplace if they hope to get a wide cross-section of opportunities."
How To Succeed
Some companies are simply better-equipped than others to raise money from overseas investors, says Fugler. Here are key ingredients for success:
A product or service that can fill a niche in an overseas market. "Foreign investors-institutional and private-are interested in a return on their investment, but they're interested in their own economy as well," says Fugler. "The opportunity to set up a joint venture which can capitalize on distribution or licensing in the investor's own country has a great deal more appeal to an investor than a concept based and contained solely within U.S. borders."
According to Rapchinski, the opportunity to utilize ReMark's JobTag solution was very important to the company's contact at Network Asia. "They saw real value in what we were doing," he says. "Unlike here, where everyone is sitting on the sidelines, they are quite active. They have a lot of portfolio companies that need the kind of solution that JobTag offers." True to Fugler's point, as a matter of fact, Rapchinski says one of the things Network Asia bargained hard for was the right to play a role in introducing JobTag into the Asian market.
Professional guidance. Fugler says it's possible a foreign investor might pursue your company, as in ReMark's case, and professional counsel isn't vital. However, if you plan on making an all-out assault on a foreign shore à la Normandy, you're going to need some help with contacts, conventions and presentation.
When it comes to contacts, Fugler suggests that finance directories that pro-vide names and telephone numbers aren't necessarily the right path to pursue. "The problem with third-party information sources is that they are often out-of-date before they are even printed," he says. "And not only do contacts move around rapidly, but the sources of capital change their focus rapidly. A firm that one day only trades listed securities will quite suddenly enlarge their focus to include pre-IPO companies. To get at these opportunities, you need [to have] someone who is on the ground in foreign jurisdictions and can pick up this intelligence."
Professional guidance will also help you overcome the widely varying social conventions you'll encounter overseas as you interact with investors. For instance, Fugler says, in France you might be expected to shake hands lightly, while Italian investors generally like to shake, pat and interact on a more physical level.
Rapchinski witnessed that firsthand. When he was in Hong Kong, he says, the meetings during the day were very formal, but equally important was the socializing that took place in the evening. "It would have been very bad form had I declined to go out at night with our hosts," he says.
Finally, Fugler notes that professional counsel will help you develop the global angle your pitch and presentation require. "A U.S.-centric presentation might fly, but in most cases, it's a turnoff for foreign investors."
Courage. The last ingredient required for success is a healthy dose of courage. Fugler says, "It's not easy to travel to a foreign land with a different culture, several time zones from home, and walk into rooms full of people you have never seen before-who perhaps do not even speak your language-for the sole purpose of selling them something they may never have seen or heard about before."
But it's not impossible. Preparation and hard work frequently translate into success in financial markets. "Since going overseas is premised on going where the competition is not," Fugler explains, "once you make the choice to look abroad, it's probably best to be prepared for anything that comes your way."
flies in Europe will undoubtedly cause offense in Asia. If
you're going to go, go armed. Here are some must-reads for the
earnest entrepreneur making a capital pilgrimage
David R. Evanson is a principal at Financial Communications Associates Inc. and author of Where to Go When the Bank Says No: Alternatives for Financing Your Business(Bloomberg Press). Call (800) 233-4830 for ordering information.