Seeking Financing… How to Make Your Case for Other People’s Money “OPM”
By John R. Brooks and Erwin G. Krasnow, Esq.
To make your case for OPM (Other People’s Money), you will need a business plan. Business plans come in all sizes, shapes and forms. Some are works of art but the underlying investment proposition is underwhelming. Others are rough around the edges but may reveal a compelling “diamond in the rough.” There is no shortage of advice on how to write that business plan that will get funded.
Like a resume, a business plan is only as good as the underlying proposition. A gifted wordsmith cannot make a dubious investment into a sure thing. So let’s assume that the investment opportunity has been properly vetted. It meets the basic investor or lender criteria. Where do we go from here?
These seven steps are good places to start:
1. Do your homework by finding out the hot buttons of your potential lenders and investors – minimum/maximum size, valuation, upside, cash flow, management, market, competition, technical facilities, NTR (non-traditional revenue), digital assets. Make sure that you understand what they are and address them in your proposal. This may not be a ‘one size fits all’ project if you’re visiting with more than one institution.
2. Directly address the concerns of your sources of financing and equity. You may be dealing with a constituency new and skeptical about the media business. They may believe that traditional media is dead and need to be educated. While some aspects of your relationship are like other commercial loan and investment relationships, no other industry shares all of the challenges that media poses: Media has no inventory, and even their equipment has too little value to support their lending needs. Their individual receivables are often small. For radio, under existing FCC rules and case law, their most valuable asset, the FCC license, can’t be subject to a security interest. Once again, education is the order of the day.
3. Don’t rely on just one institution or investor. If at all possible, develop multiple relationships so that you have options. Generally, asset-based lenders will be a poor fit for media, and especially for broadcasters, most of whose value will be tied up in the FCC license. In contrast, cash-flow lenders will be focused on the value of the business.
4. Develop relationships with investors and lenders on the front end to understand what their “sweet spot” is and give them a chance to get to know you. They don’t call it “relationship lending” for nothing. Learn how to speak their language, or maybe consider hiring someone who does.
5. Keep your money sources up to date. As you’re looking at deals, give them a heads-up so they can follow your progress and prepare for the moment you’re ready with a live project. Maybe they can help you tweak your deal analysis, but don’t lean on them too much for free advice.
6. Ask for a meeting. Investors and lenders like meetings so that they can size up the principals directly, maybe even invite the boss. If you make it this far, buy that plane ticket. There is nothing like a physical presence to bring life to words and numbers on paper. But make sure you’re prepared. Have an agenda. Don’t overstay your welcome.
7. If you’re raising debt and equity, make sure you have your equity lined up first. Countless lender meetings have ended with the words, “sounds good, come back to us when you have the equity.” Don’t confuse a lender with an automatic entrée to equity unless you’ve done business before or have an outstanding track record. In those cases a lender would probably be happy to vouch for you in a referral.
About the Authors:
John R. Brooks is a 25-year broadcast finance veteran, most recently as a Managing Director with Wells Fargo Foothill. He currently works as an independent broadcast consultant and writer. He can be reached at [email protected] and (415) 272-5123. Erwin G. Krasnow, the co-chair of the Communications Group of Garvey Schubert Barer, is a former General Counsel of the National Association of Broadcasters, Washington counsel to the Media Financial Management Association and co-author (with John M. Pelkey and John Wells King) of Profitably Buying and Selling Broadcast Stations. He can be reached at [email protected] and (202) 298-2161.
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