Positioning Your Company for a Future Transaction: Charlie BrockMarch 31, 2016
Part Three: Charlie Brock
Charlie Brock has been serving as Launch Tennessee’s President & CEO since January 2013. Launch Tennessee is a statewide public-private entity charged with developing Tennessee’s entrepreneurial ecosystem. Prior to Launch Tennessee, Charlie served for a year as CEO of CO.LAB, a Chattanooga accelerator that runs the summer GIGTANK program.
Brock is a founding general partner of the Chattanooga Renaissance Fund, Chattanooga’s first organized angel group, and was an early partner in FourBridges Capital Advisors, a lower-middle market investment bank based in Chattanooga. Kicking off his entrepreneurial journey, Brock helped establish Foxmark Media in 1998, where he served as CEO and raised several rounds of capital before selling the company in 2006 to Australian-based Eye Corp.
Charlie, start by telling us about Launch Tennessee.
We are a public-private entity charged with developing Tennessee’s entrepreneurial ecosystem. Our goal is to make Tennessee the very best place in the country for entrepreneurs, innovators and investors. Key areas of focus include strengthening our statewide network of entrepreneur centers, developing startup mentors across key industry verticals, making Tennessee a robust venue for capital formation across all stages, connecting existing industry with startups and helping innovators commercialize their inventions. We are also the marketing arm for entrepreneurship in Tennessee and we work very hard to bring more awareness and attention to the thriving startup and business scene across the state.
Throughout your career, you have been part of a number of capital raising events and investment activities. Looking back, what jumps out as a common denominator for success when it comes to those companies that have had success not only securing capital but ultimately generating a positive return?
At the end of the day, it’s all about execution. There are so many great ideas out there and some really smart people in the startup world, but can they execute? That’s what separates the winners from the also-rans.
As a prospective investor, I want to see that the entrepreneur is setting up the proper metrics, priorities and meeting rhythms to set the platform for success. There are various techniques and tools for doing so, but I prefer the Rockefeller Habits. It is a great way to ensure the team is communicating regularly, understands the priorities of the company and is making adjustments as needed.
There is no substitute for hard work. Are they – and their team – going to show up every day and do what needs to be done, including working nights and weekends, to achieve success? I once had a sales person at a startup company that was struggling to gain revenue traction say to me, in a disparaging tone, “yes, you seem like the type of person who gets up at 5-5:30 every a.m.” Clearly, he was not doing that and the sales results reflected so. Needless to say, we made some changes in the sales department.
Continuing with that investment consideration theme, you obviously have quite a bit of deal flow and opportunities coming across your desk on a daily and weekly basis. What are some key of the key attributes you look for when performing that initial screening of investment opportunity?
Is the market desirable to be in? Does it have the size and growth momentum to support new startups? If a new market, how long will it take to develop and can this company help accelerate the pace of market development and/or have enough staying power while the market catches up?
How much capital will be required? I have always been involved with smaller funds so one important consideration is if we are not able to continue to fund the follow-on capital needs, do we think we can help the entrepreneur find the necessary investors for future rounds to support the growth?
Non-monetary support – in addition to the capital, can we provide additional support, be it strategic, industry connections or other business development opportunities?
The team and what each member brings to the table – can they work together and do they have an understanding of the execution needs and the hard work required for success?
So “Darling Startup Company” has done enough to peak your interest on the front end and passed that initial round. What are some of the things companies can do (or could have done up to that point) to best position themselves for success as you continue your diligence efforts?
Customer discovery – how much have they talked to prospective buyers of their product or service? Does the entrepreneur have a large data set of prospect interviews that gives him/her a good sense of what the customer needs, how often and at what price?
Show that they have product/market fit, or if too early to have achieved that yet, share what they are doing to determine and develop product/market fit over the coming months.
Share the milestones that have already been achieved as well as what they have in place for the next 30/60/90 days.
What you would advise entrepreneurs not to mess up in the capital raise process?
This is certainly not universally true, but it is very frustrating when an entrepreneur has not really achieved anything other than coming up with a really cool ideal and they think their company/idea is worth XX million dollars.
What are some other common mistakes you have seen among companies seeking that investment capital that equate to a giant red flag?
When they say there is no competition. Typically this means either they have not done their homework or they don’t understand the nuances of the market and customer.
When discussing revenue projections and the entrepreneur takes a very top-down approach by saying something like, “Well this is a $1B market and I know we can get 2% share in 2-3 years. Thus, we’ll be a $20M company in X year.” Sales, regardless of the business model, is typically a blocking and tackling, nitty-gritty kind of process, so I want that entrepreneur who has really thought through the who, the what, the how and the how often in terms of acquiring customers and building the financial model.
Totally unrealistic expectations around valuation as well as the difficulty they will face penetrating a market and possibly having to change buyer behaviors.
What advice would you offer to business owners and CFOs contemplating some sort of liquidity event in the next 6 to 18 months (be it a capital raise or sale of the company) to help prepare them for those efforts?
If you are going to be entering the M&A market, find an advisor now to help you prepare for that transaction. Having gone through it myself as an entrepreneur, I can promise you that the pricing of the deal is just one aspect of the negotiations. An important one to be sure, but there are many other issues that can derail or delay a transaction.
Whether seeking capital or a potential figure M&A, make sure you have the right metrics in place and then work like heck to meet them. Being able to look back over the past 12-24 months and share your metrics and successful attainment of same will position the company well for the next round of capital or potential acquisition.
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