ganizations to the point of forcing mistakes. Building a solid and profitable
business model that does not depend on the convergence of many factors
that are beyond your control (and regular cash infusions) may not be immediately “sexy,” but it establishes a solid foundation and allows you to retain
control of your destiny. Raising too much money too early in a company’s
development often results in giving up too much equity in your business.
Get Advice. Major financial transactions by any business can significantly
affect the value that its owners receive, and successful management of the
capital-raising process can mean the difference between a great outcome
and a mediocre disappointment after years of hard work. For most entrepreneurs, their expertise and “value added” is based on business skills such as
product development, marketing, sales and distribution. Financial structuring and negotiation are a specialized disciplines and it is unreasonable to expect every business leader to become an overnight expert in these matters.
Furthermore, many times the opportunity cost of losing focus on the business while carrying on a transaction can be very costly and even undermine
the financing itself. Just as with any other aspect of your business, you will
benefit greatly by getting the best possible advice from your trusted sources
and delegating the effort to someone with the expertise and capacity to deliver the best possible result.
Do what you can to avoid joining the long list of entrepreneurs who
raised money without understanding the implications of crucial yet very
complicated legal concepts such as “preferred stock participation,” “
antidilu-tion,” “option cost allocation,” “supermajority voting,” “clawbacks” and
“ROFRs.” Before your head starts spinning, realize that most people don’t
know what these terms mean unless they went to law school or frequently
work with financing agreements. However, this “legal jargon” (which would
take a textbook to explain properly) can surface when you least expect it
and can greatly affect each stakeholder’s interest. For example, a multimillion dollar financing was recently scuttled at the last minute because the
company did not anticipate early-on that the investor it selected expected to
receive additional ownership in the company through a backdoor equity
mechanism called “preferred stock participation.” In effect, that financing
would have cost almost double the initial presumed price. To safeguard your
negotiating position it is recommended that you reach out to attorneys, accountants, and other business leaders you know and trust to connect you
with professional financial advisors that can help you improve your chances
of completing a successful deal. This together with the proper preparation
and organization can provide the funding partnerships you need to grow your business.
Pedro Garcia is a managing director and a partner in the investment banking firm of
Hadley Partners, Incorporated ( www.hadleypartners.com), where he specializes in capital raises and mergers and acquisitions within the food industry. He also serves on the board of directors of Frontier Natural
Products Co-op. He can be reached at Garcia@hadleypart-ners.com.
Ronan P. O’Brien is a partner with the law firm of Sey-farth Shaw LLP ( www.seyfarth.com), where he advises businesses and entrepreneurs on venture financings and mergers and acquisitions. He can
be reached email@example.com.
15-19 The Agriculture Course: An Intensive
Study of the Origins and Future of Biodynamics, Chestnut Ridge, NY. Contact: The
Pfeiffer Center, 845.352.5020 ext 20;
18-20 NASF T Winter Fancy Food Show, San
Francisco, CA. Contact: National Association for the Specialty Food Trade,
20-21 CCOF Educational Conference: Hot Topics in Organics, Pacific Grove, CA. Contact: California Certified Organic Farmers,
21-24 Eco-Farm Conference, Pacific Grove, CA.
Contact: Ecological Farming Association,
22-25 Guelph Organic Conference, Ontario,
Canada. Contact: Organic Food Conferences Canada, 705.444.0923;
26-29 USCC Annual Conference & Tradeshow,
Houston, TX. Contact: US Composting
Council, 631.737.4931; www.composting-council.org.
1-3 AAIE Ecological Pest Management Conference, Modesto, CA. Contact: Association of Applied IPM Ecologists,
3-4 CLFP Expo & Showcase of Processed
Foods, Sacramento, CA. Contact: California League of Food Processors, (916) 640-
3-6 NGA Annual Convention & Supermarket
Synergy Showcase, Las Vegas, NV. Contact: National Grocers Association, (703)
11-13 Scientific Conference on Organic Agriculture, Zürich, Switzerland. Contact: Research Institute of Organic Agriculture
19-22 BioFach, Nuremberg, Germany. Contact:
NurnbergMesse GmbH, + 49.0.911.86.060 ; www.biofach.de.