8 Tips For Attending Micro-Cap Conferences.

Micro-Cap ConferencesThere are a number of great “micro-cap conferences” held annually for micro-cap management teams, investors, and service providers. With dozens of events every year, micro-cap conferences are a great way to meet others in the micro-cap space. Some top events include the Marcum Micro-Cap Conference, SeeThru Equity Conferences, Noble Financial’s NobleCon, and LD Micro.

While micro-cap conferences are all pretty similar, these conferences have some unique characteristics when compared to other industry conferences (even VC/Private Equity conferences I’ve attended). Below I’ve listed 8 tips for attending micro-cap conferences.

1. Positive Attitude – As in life, attitude can make or break an event for you. I’ve met a lot of people at these events with attitudes at both ends of the spectrum. Having a positive attitude seems pretty obvious but I’ve met with people who very clearly don’t want to be at the event. They complain about their other meetings, the event in general, micro-caps, or the other people at the event. These conferences are your opportunity to show other professionals in the micro-cap space what you and your company are all about. Put on your game face and be positive!

2. 1-on-1 meetings – Nearly every micro-cap event offers 1-on-1 meeting for management teams and investors to meet. If you’re an investor or part of a public company’s management team, my advice is to have as many 1-on-1s as possible! When I started going to these conferences, I would schedule only a few meetings and plan on mingling and attending presentations the remainder of the time. Eventually, I realized the best way to get value out of these conferences was to schedule as many quality 1-on-1s as possible. Now when I go to these events, I do some high-level DD and schedule meetings with anyone I think might be a good fit. I also recommend accepting all of your meeting requests because maybe the requester saw a potential synergy that you didn’t notice. Lastly, if you’re requested for more meetings that you can’t attend, introduce another member of your team. The goal is to spend as much time as possible meeting people and the easiest way to do that is to plan to meet in advance!

3. Have a Plan – Ask yourself, why am I attending this conference/what are my goals? Once you establish your goals, put together a plan for reaching them. I’ve found the value of any conference increases exponentially with just a little bit of planning.  For more tips on preparation, check out these links from Axial.net: “pre-conference checklist” and “How to Master Industry Conferences & In-Person Meetings“.

4. Share with Connections –  Most conferences are held in large coastal cities — the same cities where many of your contacts, supporters, and shareholders are located.  Many of those connections may already plan on attending the event or may decide to attend the event to meet with you! PR it, tweet it, blast it, blog it, etc. Attending these conferences are something to talk about and a reason to catch up with old connections. The best part is, letting your connections know you will be there will allow you to schedule a meeting in advance and get them thinking about others in their network they can introduce you to at the conference!

5. Bring the Team – If you do it right, your schedule will fill up fast. Bring the team with you so they can carry some of the load. Don’t be afraid to split up! Do 1-on-1s on your own, eat lunch at separate tables, and mingle in small groups or solo (you’re much more approachable when you are on your own than when you are huddled in the corner with your colleagues).

6. Talk to sponsors – Talk to service providers and other companies with sponsor booths. They spent a lot of money to set up a table and talk to people like you! These are easy introductions and a good way to warm up your mingling skills. Find out how they can help you and how you can help them. The sponsors probably already know a lot of people and are also meeting a lot of new people. Wouldn’t these sponsors be a great group to add to your network?

7. Talk to Media – From micro-cap specific media to mainstream financial publications, there will be some level of media presence at all of these events. Don’t be shy! Find out what they are doing/looking for and if they would be interested in interviewing you. If you are a presenting company, you are often given the option to webcast your presentation – dot it!

8. Follow Up – Always follow up with everyone you meet, even if there doesn’t appear to be a fit. Following up via email solidifies yourself in their network because next time you email them they will easily be able to look you up to see how they know you/where you met. It’s also a good time to add them on LinkedIn. For more advice on following up, check out this post on Forbes HERE.

The great thing about these conferences is that they bring micro-cap investors, companies, and service providers from across the country together in one place. Attending with your “A-game” will allow you to meet more people during the few days at the event than you may meet the rest of the year!

 


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

 

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Why I Don’t Want to Sign Your NDA.

MicroCap NDASpeaking with hundreds of public and private companies each year, I am often asked to sign NDAs. While there are certain situations where signing an NDA is warranted, all too often signing an NDA is an unnecessary complication. So, why won’t I sign your NDA? For four simple reasons (five if your a public company); (1) I don’t want to steal your idea, (2) NDAs create unnecessary liability, (3) signing an NDA can potentially limit me from working with other companies, (4) I don’t need the recipe if I don’t even like the cookie, and (5) (as a public company) your material value proposition should already be clear to the public!

(1) The first point, “I don’t want to steal your idea“, is usually the biggest concern for CEOs and the silliest for investors. I see boatloads  of great ideas every year, but very few actually turn into successful businesses. A successful business is made up of much more than a good idea.  (That being said; time, knowledge, and passion are very important ingredients for success.) Like most investors, my time, passion, and brain power is dedicated to doing deals not stealing other people’s ideas.

(2) The second point, “NDAs create unnecessary liability“, is easy for those with a basic level of legal knowledge to understand.  Signing an NDA, that covers a specific time period creates long term liability relating to a company I may only speak with a few times. Of the hundreds of opportunities I see, only a select handful turn into actual deals. If I signed an NDA with every company that never turned into a deal, I would have hundreds of NDAs to keep track of! Not to mention the best way to limit my liability would be to have my attorney look at the document. My attorney would then have comments that you would need to run by your attorney turning signing a two page document into a time consuming and expensive ordeal.

(3) Our third reason, “I can potentially be limited from working with other companies“, is related to point two. NDAs often have language that attempts to (or can be construed to) limit the parties from working with other companies in similar industries, with similar business models, etc. This creates tremendous liability for an investor who looks at hundred of deals a year, particularly if that investor specializes in a specific industry or niche. If I signed an NDA with everyone I spoke with, I would soon be unable to speak with anyone!

(4) The fourth and perhaps most simple reason is “I don’t need the recipe if I don’t even like the cookie“. For investors, the most important information isn’t how you make your cookie, it’s how your cookie tastes! Investors want to know that your cookie is good and that it will sell. Once we know the cookie will sell we may wan’t to know about the ingredients. This is also a good point to consider when presenting to investors. If you have a great app, service, medicine, technology, etc., don’t complicate things with the technical’s of how it works. Talk about how it makes money!

(5) An additional point for public companies is that investors don’t want to come over the wall, especially during early conversations! If public and non-material information can’t explain the opportunity, then you have a bigger problem than NDAs. As a public company, your value proposition should be clearly available to all potential investors and any significant material information should be made public within a week of its occurrence. Now, some CEOs think having investors sign NDAs has something to do with insider trading. Insider trading is illegal and most legitimate investors have a lot more to lose than they have to gain by trading on inside information.

So now you know why investors don’t like to sign NDAs! If you don’t want to take my word for it, check out these other sources:

Why VCs Don’t Sign NDAs and You Shouldn’t Worry About It” by John Rampton on Entrepreneur.com

Why Investors Don’t Sign NDAs” by Wil Schroter on Fundable and Forbes.

Why Most VC’s Don’t Sign NDAs” by Brad Feld founder of Techstars & Foundry Group

 

About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.

 

 

Micro-Cap Acquisition Funding – 5 Ways for MicroCaps to Fund Acquisitions.

Micro-Cap Acquisition Funding

Micro-cap acquirers (micro-cap issuers growing through acquisitions) are often cash strapped with big ambitions. Its not uncommon for micro-cap issuers with less than $100k in the bank to attempt multi-million dollar acquisitions.

While some might think the management teams of cash poor – ambition rich micro-caps are delusional, there are actually numerous examples of micro-cap companies (in ugly financial shape) closing relatively large acquisitions and succeeding!

Micro-cap acquisition funding options are often misunderstood and underestimated by management teams, investors, and sellers. There are five traditional ways acquirers fund acquisitions; (1) cash on hand, (2) debt financing, (3) equity financing, (4) seller financing, and/or (5) stock consideration.

1. Cash on Hand – Those with little understanding of acquisitions may think you can only acquire a business if you have the cash on hand to pay for it. While that is certainly not the case, its always nice to have the cash on hand to pay for an acquisition. With sufficient cash on hand, you don’t need to involve third party financiers or negotiate seller financing allowing fast and precise negotiations/closings. Unfortunately, the majority of micro-caps don’t have the ability to finance acquisitions internally with cash on hand.

2. Debt Financing – For firms with (or acquiring targets with) strong assets or cash flows, debt is always a good option. Even if an acquirer isn’t  financially strong on its own, leveraging a target’s financial strength can allow an acquirer to fund a large acquisition with debt financing. While the variety of debt options (senior secured or mezzanine, asset or cash flow based, SBA loans, etc.) can be a a perfect fit for many deals, debt won’t work for all situations. Many micro-caps have very weak financials and other attributes that could limit or eliminate the option of debt financing for microcap companies.

3. Equity Financing – For microcaps, equity financing is perhaps the most popular financing option, not only for acquisitions but, for all capital needs. Access to the capital markets is one of the two major advantages public companies have over their private counterparts. While equity funding usually isn’t a strong option for private acquirers, access to the capital markets allows public companies to raise significant capital at higher valuations than similar private companies.

4. Seller Financing – As part of the purchase price a seller may agree to take a note payable by the acquirer. A flexible seller is the key to making any acquisition work. If  seller believes the new combined entity is going to be successful they may be willing to take a note and be paid over time. Seller notes usually require some sort of down payment in addition to other terms similar to those of traditional debt (interest, term, amortization, etc.).

5. Stock Consideration – A special acquisition funding tool, primarily reserved for public companies, is stock consideration. A seller may be excited about taking stock in a acquirer if they believe in the acquirer’s business plan and management team. If an acquirer’s management team can really “sell” a seller, on the future of the acquirer’s business, the buyer may even be able to acquire a target for all stock (About 18 percent of major M&A transactions in 2015 were entirely stock). While small private companies may have greater difficulty using stock to make acquisitions, public companies’ stock is a much more valuable currency because of liquidity and the market’s price validation. The ability to use stock to fund acquisitions may be the most unique advantage of micro-cap issuers and thus the most important piece of the micro-cap acquisition funding puzzle.

With the multitude of micro-cap acquisition funding options, its no surprise that more and more micro-cap issuers are making acquisitions their primary growth strategy.

 

For more on Micro-Cap Acquisitions check out the Acquis Capital Blog or my post “Micro-Caps are Made for M&A.

 

About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.

 

When Unicorns Die, Employees go to Hell.

Dead Unicorn

On Sept. 4, 2015 BlackBerry acquired Good Technology a mobile security start-up for $425 million, less than half of its $1.1 billion private valuation.  What’s worse, the company turned down a $825 million cash offer six months earlier.

Selling for this low valuation was not ideal for any shareholders but the deal was especially difficult for common shareholders (the majority of whom, for unicorns, tend to be employees). The venture capital firms that financed Good Technologies growth, and controlled its board of directors (the same BOD that approved the acquisition), held the majority of their ownership through preferred shares while employees held mostly common stock. The preferred stock, owned by the VCs, fetched $3/share in the sale, down from a high private valuation of about $6.50/share in early 2014. The common stock, which the majority of employees owned, sold for $0.44/share, down from a private valuation of $5/share in early 2014!

Not only did common shareholders’ get much less for their stock than they anticipated but many had paid taxes on the high valued stock in previous years. Some employees even took out loans to cover their tax bills believing their stock was worth six or seven digits. In a matter of months, employees’ stock was worth a fraction of what they thought and they were out cash or in debt from paying Uncle Sam.

Unfortunately this is not an uncommon scenario. According to Mattermark, in the last 5 years at least 22 vc-backed companies have sold for less than or equal to the amount of capital they raised (I have a feeling the number is much higher). That number is destined to rise with the explosion of valuations in Silicon Valley. Selling for less than what was raised is tough on everyone but for professional investors (VCs) it’s their worst nightmare and they do everything in their power to protect themselves from losing money in those situations.

When unicorns fail (or regress) they are no different than most businesses. Those who invested get paid back first and common shareholders get whatever is left. It’s unfortunate that unicorns use their aggressively valued common stock to pay employees who may not understand the complexity (or absurdity) of unicorn valuations. While employees seem to understand the upside of owning stock they tend to underestimate the downside so, when things go wrong, they end up “holding the bag”.

 

For more on the Good Technology story, check out this NY Times article: LINK

 

About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.