Universal Language U.S. investors aren't the only ones who know a good deal when they see it.
By Art Beroff
Opinions expressed by Entrepreneur contributors are their own.
Although the world is home to hundreds of different languagesand cultures, the words business, capital and profitare understood everywhere. That's a good thing for Chris Donatoand John Rapchinski, co-founders of ReMark Partners Inc., who foundthat their road to potential riches began overseas, even if itdoesn't end there. In fact, they recently secured funding fortheir company from investors overseas, demonstrating thesignificant 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 inrecruiting. "JobTag is an employment referral solution thatenables companies to use their employees, vendors and anyone withvested interest to [get referrals] through our company," notesRapchinski. "Most of our clients are small to mid-sizedbusinesses, 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 fromindividual and institutional venture capital investors. And thoughthe stock markets began to show a fissure in April 2000, there wasstill enough momentum left for ReMark to close a $1 million dealthat May. The proceeds were earmarked for working capital, productdevelopment and the addition of key personnel.
State Of The Market
That Was Then, This IsNow
But what a difference a few months make. Tech stocks soured andshare prices for technology companies sank fast, making thebusiness and financing climate much cooler for young companies inthat sector. Or was it? That depends on your perspective. Outsidethe United States, capital-raising dynamics were much differentduring the latter half of 2000, and investors remain eager foraccess to new deals. So ravenous is the appetite overseas forU.S.-grown ventures that ReMark's news release about its Mayfunding round appeared on a radar screen at venture firm NetworkAsia in Hong Kong- and led to a meeting between the two companiesin San Francisco and ultimately a $1.5 million financing deal inDecember 2000.
That's good news for Rapchinski, who says Network Asia helpsput ReMark in an advantageous position in the market. He says,"What they can provide in the way of experience and businessconnections really made them a natural partner."
Techtonic Shifts
According to Michael Roy Fugler, director of corporate financefor I-Bankers Securities, an investment banking firm in Dallas thatconcentrates on raising overseas financing for companies around theworld, there are several reasons why international markets are nowproductive hunting grounds for U.S. investors. "First,"Fugler says, "looking for capital outside the United States isthe road less traveled. Here you might have 30 players in a singleniche, all focusing on the same investors. But once you startlooking in foreign jurisdictions, your competition is minimized, ifnot eliminated.
"Second," Fugler says, "angel investors, whichwere rare in overseas markets before, are emerging en masse."Fugler's firm focuses on institutional investors in Europe, buthe says the activity there indicates a change in the capitalmarkets on a global scale. "Estimates indicate that during1999, some $25 billion was invested in 11,000 companies inEurope," notes Fugler, "which amounts to a 94 percentincrease in investment in the technology sector and an 89 percentincrease in capital committed to start-up deals in 1998. We'vealso seen an upward trend in 2000."
Fugler says such astounding figures mean a much richer targetenvironment. "In Munich, for instance, many firms did not haveventure capital arms 18 months ago," he says, "but nowthey do. They've seen the Microsofts and the Intels flourishinto budding technology companies, and they feel left out. Althoughthe bubble has burst, and there is [now] an emphasis on profits,there is still a strong desire to participate in the NewEconomy."
The dearth of entrepreneurs overseas vs. their abundance here isanother factor. "In Europe, and globally, you have astimulated market that is entrepreneur-enthused without a lot ofoptions," says Fugler. "Therefore, the capital overseaslooking for U.S.-style opportunities must focus on the U.S.marketplace if they hope to get a wide cross-section ofopportunities."
How To Succeed
Some companies are simply better-equipped than others to raisemoney from overseas investors, says Fugler. Here are keyingredients for success:
A product or service that can fill a nichein an overseas market. "Foreigninvestors-institutional and private-are interested in a return ontheir investment, but they're interested in their own economyas well," says Fugler. "The opportunity to set up a jointventure which can capitalize on distribution or licensing in theinvestor's own country has a great deal more appeal to aninvestor than a concept based and contained solely within U.S.borders."
According to Rapchinski, the opportunity to utilize ReMark'sJobTag solution was very important to the company's contact atNetwork Asia. "They saw real value in what we weredoing," he says. "Unlike here, where everyone is sittingon the sidelines, they are quite active. They have a lot ofportfolio companies that need the kind of solution that JobTagoffers." True to Fugler's point, as a matter of fact,Rapchinski says one of the things Network Asia bargained hard forwas the right to play a role in introducing JobTag into the Asianmarket.
Professional guidance. Fuglersays it's possible a foreign investor might pursue yourcompany, as in ReMark's case, and professional counselisn't vital. However, if you plan on making an all-out assaulton a foreign shore à la Normandy, you're going to needsome help with contacts, conventions and presentation.
When it comes to contacts, Fugler suggests that financedirectories that pro-vide names and telephone numbers aren'tnecessarily the right path to pursue. "The problem withthird-party information sources is that they are often out-of-datebefore they are even printed," he says. "And not only docontacts move around rapidly, but the sources of capital changetheir focus rapidly. A firm that one day only trades listedsecurities will quite suddenly enlarge their focus to includepre-IPO companies. To get at these opportunities, you need [tohave] someone who is on the ground in foreign jurisdictions and canpick up this intelligence."
Professional guidance will also help you overcome the widelyvarying social conventions you'll encounter overseas as youinteract with investors. For instance, Fugler says, in France youmight be expected to shake hands lightly, while Italian investorsgenerally like to shake, pat and interact on a more physicallevel.
Rapchinski witnessed that firsthand. When he was in Hong Kong,he says, the meetings during the day were very formal, but equallyimportant was the socializing that took place in the evening."It would have been very bad form had I declined to go out atnight with our hosts," he says.
Finally, Fugler notes that professional counsel will help youdevelop 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 ingredientrequired for success is a healthy dose of courage. Fugler says,"It's not easy to travel to a foreign land with adifferent culture, several time zones from home, and walk intorooms full of people you have never seen before-who perhaps do noteven speak your language-for the sole purpose of selling themsomething they may never have seen or heard about before."
But it's not impossible. Preparation and hard workfrequently translate into success in financial markets. "Sincegoing overseas is premised on going where the competition isnot," Fugler explains, "once you make the choice to lookabroad, it's probably best to be prepared for anything thatcomes your way."
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 Whatflies in Europe will undoubtedly cause offense in Asia. Ifyou're going to go, go armed. Here are some must-reads for theearnest entrepreneur making a capital pilgrimageoverseas:
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David R. Evanson is a principal at Financial Communications Associates Inc.and author of Where to Go When the Bank Says No: Alternatives forFinancing Your Business(Bloomberg Press). Call (800)233-4830 for ordering information.
Contact Sources
- I-Bankers Securities, (212) 459-3765, mrfugler@aol.com
- ReMark Partners Inc., (877) JOB-TAGS, www.jobtag.com
