Popular Articles

Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

read more
by Andrew Tellijohn
September 2005

Related Article

Selling to key employees

Read more

Slow and smart


Slow and smart

Financiers of all types want carefully constructed growth plans

by Andrew Tellijohn   Rajiv Tandon has been through the money-raising wars before, both in his current position as president and CEO of Adayana Inc. and in a previous life with LearningByte International.

Raising capital is never easy. But he says he’s noticed most recently that those controlling the pursestrings are more willing to loosen them than at any time since Sept. 11, 2001, when terrorist attacks decimated companies looking for financial support.

But you have to go about it correctly, Tandon and others say.

Most recently, at the end of 2004, Adayana worked with Golden Valley-based Oak Ridge Capital Group Inc. to raise $3 million the company will use for expanding its corporate distance and e-learning offerings. The Edina-based company has raised $9 million overall since opening in 2001.

“I will never say it is easy,” he says. “It is a lot of work. It was easier than it has been in the past.”

There are, he adds, some things companies can do that will show investors their company is worthy of capital. Be realistic in your planning, show lenders and investors concrete strategies for slow, intelligent growth, and realize that you probably won’t be able to raise all the money you might want all at one time, he says.

Perhaps most important: show evidence of your willingness to provide sweat equity.

“We haven’t had any trouble in all of the three rounds. There is a lot more money looking for good deals out there,” Tandon says, adding that company performance is key.

“We have made a great deal of progress. Without the progress I don’t think there is easy money out there. I wouldn’t say just because there is money out there people are willing to invest in anything. You have to have performance.”

Tandon declined to discuss specific future strategies for expansion because at the time of an interview he was preparing to raise more money. Adayana does, he says, have an impressive collection of customers including the U.S. government, several banks and credit unions and large corporations in its four areas of focus: food and agriculture, government, financial services and automotive engineering.

The company projects $17 million in revenue for fiscal 2006, which began April 1.

“We do have a very impressive clientele,” he says. “That’s part of being able to demonstrate progress.”

Tandon’s story is not unique. Twin Cities companies seeking capital and the companies that can provide it say money is cheap, plentiful and to some extent burning holes in pockets.

Michael Gorman, managing director of Eden Prairie-based Split Rock Partners, recently closed its venture capital fund after raising $275 million. Split Rock, one of two splinter companies formed by the former St. Paul Venture Capital, will help fund Twin Cities and California companies in health care, software and Internet services. The fund has already invested in a Twin Cities IT software company and a California-based medical device start-up.

Gorman declined to provide more information about those firms as neither has publicized its plans yet. But he did say money is available for those who need it, if their business plans so warrant.

“There is a lot of private capital available to invest,” he says. “Not surprisingly, in light of the experiences of recent years, people have a high bar when it comes to making investments.”

Split Rock seeks emerging companies with experienced leadership teams and new, innovative ideas that have high profit and revenue potential. Fund managers are less likely to invest in start-ups with first-time entrepreneurs, but will consider them if the idea knocks their socks off.

“It’s all company-specific. Companies with deep expertise in an area but not a complete team, there are often ways to address that,” he says. At his fund, partners would “make sure a team can be assembled that is capable of realizing the potential of the business.”

Varied capital sources
In October, H.B. Fuller Ventures invested an unspecified amount in SAGE Electrochromics, a Faribault-based developer and manufacturer of electrochromic glass that allows users to electronically control the amount of light and heat to pass through.

It was at least the second investment made by H.B. Fuller Ventures, an arm of Vadnais Heights-based H.B. Fuller Co., since it was launched in 2003.

A look at Business 2.0 magazine’s Web site reveals at least 20 such corporate venture funds in the United States. At least two Twin Cities companies, Cargill Inc.’s Cargill Ventures being the other, have them.

Bob McGrath, managing director of H.B. Fuller Ventures, said at the time of the SAGE invesment that it was a strategic move. “We have complementary technology and share a similar customer base with SAGE.” He also cited visibility for Fuller, and partnership opportunities in an “exciting new market” as reasons for the investment.

Getting financing from banks also seems to be getting easier. Dr. Paul Gauer was an associate with a Twin Cities-based veterinary clinic. He’d always wanted to start his own clinic but was intimidated, largely by the prospect of trying to raise the necessary capital.

But when his former firm went bankrupt, he bought an old Allina Medical Clinic building, purchased his former firm’s computer records, and received a referral to a lender with Wells Fargo Minnesota. He received his nearly $600,000 Small Business Association (SBA) loan in March, spent some money fixing up his new building, and opened for business in April.

“It was much easier than I thought it was going to be,” he says. “From the horror stories I heard on SBA loans I thought they would really wring you over for minute details. It wasn’t really like that.”

Gauer did have to put together fairly detailed projections for revenue and expenses and create marketing and business plans. But with his background and the help of statistics provided through his membership in a trade association, that wasn’t a problem, he says.

Ham Lake Veterinary Hospital has exceeded its break-even goal during the first two months of operation and Gauer’s only regret is that he didn’t go into business for himself earlier.

“I was always afraid that getting the loan would be a really big deal,” he says. “Jump in and do it. I’ve been putting it off for several years. I wish I had done it five to six years ago.

One thing making it easier for entrepreneurs to receive SBA-backed loans is the new Express Loan program. The Minnesota Chapter of the U.S. Small Business Administration last year established the program under which the banks it works with can use their own documents and grant or decline loans without SBA approval.

In exchange, the SBA only guarantees half the loan instead of three-quarters, says Mel Aanerud, assistant director of the Minnesota SBA chapter. “We’re not looking over their shoulder,” he says. “We haven’t had time to evaluate whether the loans are better, worse or indifferent.”

Banks and borrowers have eaten the program up. Through the end of May, the SBA had guaranteed 1,526 loans, up 13.9 percent from 1,340 through May 2004. The SBA also is on pace to far exceed the 2,073 loans it did in 2004, Aanerud says. “This year we are growing just that much faster,” he says. “There doesn’t seem to be an end to the expansion.”

Fizal Kassim, president and CEO of Maple Bank in Champlin, says he is consistently amazed by his clients’ creativity. One recently became disenchanted with his career. The man left his company, went to his bank, rolled his 401(k) into a different type of account that he could borrow money against without penalizing his retirement savings, and started his own business.

Others have used their houses and brought in outside investors with entrepreneurship backgrounds in an effort to make their business plans strong enough to warrant bank support, says Kassim.

Bank officials will ask those that are less established to put a bit more skin in the game themselves. However, those potential entrepreneurs with creative and well thought-out business plans likely will get funding somehow.

“People are coming up with creative ways,” he says.

Easier with experience
While financing is available, most investors and lenders prefer looking at companies with already established revenue or whose leaders have at least some experience starting businesses.

For example, Eden Prairie-based Compellent Technologies Inc. secured $15 million in financing from a Denver-based investment firm in May. When data storage firm Compellent was just getting started, however, investors were still interested because founders Phil Soran, John Guider and Larry Aszmann had a track record after starting Xiotech Corp. in the 1990s.

“The problem is you have to be at a certain stage,” says Dee Thibodeau, co-CEO of Charter Solutions, a Minnetonka-based technology consulting company. “The early stage is not where people are getting excited.”

Part of the problem is that many venture capital companies that had invested in early-stage businesses have allocated their entire funds and are waiting for those companies to provide liquidity through mergers, acquisitions or initial public offerings (IPO), says Joy Lindsay, president of Bloomington-based StarTech Investments, which invests in early-stage technology firms.

That limits the capital available for start-ups and the opportunity for companies like StarTech to enter partnerships with other venture funds to close deals. But with mergers and acquisitions booming in 2005, the IPO market coming back, and with new funds popping up, more money should be available in the next 12 months or so, she says.

“Good deals still get funded. It may take a little bit longer and the entrepreneur might have to work the network a little harder,” she says. “The activity has picked up in the last couple months.”

One reason for the improving market is positive reinforcement investors are getting from the companies in which they invested a few years ago. Several early-stage and privately held companies recently have either been sold to larger companies for a profit or they have gone public, says Dan Carr, president of the Collaborative in Minneapolis, a network of growth companies.

Law firms focusing on mergers and acquisitions project near-record deals in 2005. Additionally, the IPO market is improving. Ev3, a Plymouth-based medical device company, raised $16.4 million in an IPO in June. Life Time Fitness, Chanhassen, went public in 2004. Eden Prairie-based Golf Galaxy Inc. and a handful of others recently filed to do so.

 “It is financing that shows you can make money if you invested in that company early,” Carr says. “There’s hope on the horizon that companies can create liquidity down the road.”

John Thwing, who specializes in SBA loans with Wells Fargo, says as long as business owners either have a business background or are teamed up with someone else who does it’s a good time to be seeking capital. While short-term interest rates have increased, long-term rates remain near record lows.

“Banks are very interested in people’s business,” Thwing says.

[contact] Mel Aanerud, Minnesota SBA Office: 612.370.2324; melvin.aanerud@sba.gov; www.sba.gov. Dan Carr, The Collaborative: 612.338.3828; dcarr@collaborative.net; www.collaborative.net. Dr. Paul Gauer, Ham Lake Veterinary Hospital: 763.413.3102; hamlakevets@aol.com. Michael Gorman, Split Rock Partners: 952.995.7474; michael@splitrock.com; www.splitrock.com. Fizal Kassim, Maple Bank: 763.712.2821; fkassim@maple-bank.com; www.maple-bank.com. Joy Lindsay, StarTech Investments: 952.883.3222; joylindsay@comcast.net. Rajiv Tandon, Adayana Inc.: 952.830.0600; rtandon@adayana.com; www.adayana.com. Dee Thibodeau, Charter Solutions Inc.: 952.545.1768; dee.thibodeau@chartersolutions.com; www.chartersolutions.com. John Thwing, Wells Fargo SBA Lending: 612.316.2501, www.wellsfargo.com, sbaguy@wellsfargo.com.