Chapman, Spira and Carson, LLC. is an early stage
venture capital provider. The term venture capital means
different things to different people. If you discussed a
venture capital transaction with your conservative
banker, he would probably understand the term to mean,
providing working capital to an enterprise with proven
management that had been successful for over century.
Your banker would require collateral encompassing assets
and cash flow far exceeding logic to secure his
position. To us, venture capital is early stage
financing for an embryonic business with an untested
product. What constitutes a business? Any enterprise
entered into by an entrepreneur for the purpose of
making a profit. What would we define as an early stage
venture and why? This one is a little tougher to answer.
believe that management's track record is the key to
assessing the likelihood of a business' success. The
fact that a person has been very successful in one type
of business may or may not mean he will be successful in
another. What was his role in his former business and
what is his role in this one? Did he start it from
scratch or was it already up and running? Was the
product or service his idea or someone else's? The
answers to these questions are critically important, but
no matter how they are answered would not shut the door.
The responses simply influence the terms on which the
financing might be arranged. A person who has been
successful in all his endeavors to date is likely to
have a better chance at succeeding than the person who
has tried many things and failed in all of them.
Management ability is more important than the underlying
concept of the product or service. Therefore, we spend
more time discussing this aspect of a potential client's
business. We often ask why management that has a good
record of accomplishment lacks enough capital on its own
to provide financing to their new endeavor. We would
hesitate to provide financing if this question is not
adequately answered. There could be extenuating
circumstances such as sickness, theft or innovation that
outmoded the product. If the competing new technology
had been fairly obvious, but overlooked by our suitor,
we would worry about his strategic planning ability.
additional elements are also critical to the evaluation.
Is this a person that has the will to stick to his guns
and is hungry as hell? If the answer is yes, then we
have the start of something interesting. How good is the
idea? Having seen just about everything the human mind
can think up over the years is good training for
answering the question. An idea's relevance is fairly
quantifiable unless you are thinking in terms of new
medical, chemical or physical concepts. Again, this
would not disqualify the concept, but it would make the
process of due diligence much more involved.
one of the later ideas were to be brought to us by
someone that obviously did not have the necessary
background in that field, we would probably discount any
chances it may have. We have been blessed with a staff
that covers most of the bases and is able to
intelligently assess the value of most products and
the concept sounds interesting enough and we don't have
anyone on staff with the necessary qualifications to
evaluate it, we bring in a consultant in that field.
Finally, we ask whether the potential client understands
that they are a fiduciary for people that have had
enough confidence in them to fund their venture when all
others would not. This is not an issue of loyalty; it is
an issue of integrity. We are able to dedicate
substantial resources to a promising project, but we are
not interested in committing those resources to
unscrupulous borrowers with no concept of their
responsibility to the lender.
This brings up another problem that is one we face day
in and day out: So this guy comes in and he has a device
that will supply the globe with energy for the next
millennium at no cost. He gives a small laboratory
exhibition of his concept and we stand in awe of what
has been accomplished. He now informs us that he is not
going to share the secret of what he has done with us,
the patent office or even his mother. Thanks, but no
thanks. We are willing to sign any reasonable
non-disclosure agreement that he desires, but we are not
going to deal with anyone that feels that his invention
is more important than money. We know that our funds
exist, but we must be sure that the concept is solid as
well. Things that work well in a laboratory have only
gone through the initial stage of an investigation. It
is a long way from the lab to the production line.
Although it is possible that we would take some interest
in an intangible concept, we would like to see a
prototype of any completely new product.
it is a new business or an old business re-engineered,
we would require an extensive business plan. We are well
aware that projections are so much hog wash, but yet by
intensively putting something to paper, evaluating the
competition, enumerating the expenses, projecting the
earnings and at the same time foretelling what the
future will bear is an exercise that we believe would be
helpful to anyone. Therefore, the energy product that
will change the world might escape the intense scrutiny
usually given to these types of things, but would still
require substantial scientific backup, illustrating the
theories involved in its creation.
does this person get along with others? Not critical if
we are not dealing with a neurotic person. Some people
like to work alone while others enjoy the company of the
cohorts. On the other hand, someone that does not like
to be in the company of others or does not respect them
is not a good candidate for being the chief executive
officer of a thriving business. This trait is not a
management strength. People skills are as important as
scientific or mechanical skills; the inventor who
understands this and will leave operations to a
professional is someone whom we respect and are willing
to deal with. With our cadre' of management contacts, we
are quite able to find someone qualified to run the show
while our erstwhile prodigy confines himself to the
laboratory and continues to turn out a never ending
stream of unique products. For practical business
purposes, this line most be drawn in steel and may not
be crossed. Eventually the day will come when the
underwriters will want to meet the creator of all of
these wonders; at that time he must be willing to go
through all of the proper motions to accomplish the
financing, prima donna's don't get the job done.
Money is not a particularly dear commodity on Wall
Street and although it is still revered, it is available
in bulk. Nobody wants to lose it but we are smart enough
to know that something must be ventured in order to
create the opportunity for gain.
There are few ideas of great merit with credible people
behind them that cannot command almost unlimited money.
Federal Express and Netscape are good examples of ideas
that were so startling they found literally no trouble
attracting as much capital as was logically required. On
the other hand, these concepts were unique and these
opportunities are few and far between. If the project
passes muster, we set up a series of hurdles and work
out a progress payment arrangement with management. They
tell us what they are going to accomplish and what it is
going to cost. We create hurdles or thresholds. As each
hurdle or threshold is passed and the project throws off
a profit, we proceed to the next stage of financing.
the hurdle is missed, we bring together the team that is
involved in the project, both from our side and theirs,
and determine what went wrong. Was our timing just too
optimistic or was management's assessment of the
difficulty of clearing the hurdle wrong? If this happens
consistently, then we are dealing with a group that has
no foundation in reality and the project is undoubtedly
it happens more than it should, we are probably dealing
with management that needs guidance. Our business is
that of investment banking, not that of shepherding
companies through mazes.
with all of our guidance, the rewards appear to be
substantially less than estimated and our professionals
spend too much time overseeing the project, it may be
time to pull the plug. If everything is going like
clockwork, schedules are met and the thing looks even
better than we thought, we have died and gone to heaven.
As long as everyone has their proverbial sleeves rolled
up and is giving it their best, we will stick with their
project to its fruition one way or the other. Of every
ten deals that we finance, only one is a major success.
Two will break about even and take an awful lot of our
time, and the rest will fail. The winner will pay the
bills for the next couple of years. It is a marvelously
interesting business to be paid for sitting on the
cutting edge of global technology and knowing that each
day brings another potentially exciting project. We are
always on the fifty-yard line and the home team always
has the ball.
welcome you, your ideas and your hang-ups. Most of them
we can work out. This was only meant to describe what we
think about when you walk in our door.