Solving the Value Equation
Entrepreneur Friendly Capital Options in 2014
Entrepreneurs Friendly Growth Capital Strategies
While growth capital is readily available from Private Equity Groups (i.e. "Financial Buyers")
for large scale enterprises and venture capital is focused on early stage startups from a narrow
segment of industry sectors (life and bio sciences, high tech and software, and energy);
entrepreneur friendly capital bridges the gap for companies looking to jump the chasm from a
small or medium sized business with limited financing options to a market leader.
And jumping the chasm creates the opportunity for wealth creation for founders that is not
readily available via other financing instruments.
The Availability of Capital
For startups driven by innovative founders venture capital can be the perfect marriage of funding coupled
with ongoing management support necessary to transform the company into a market leader. But for
most entrepreneurs venture capital (VC) is simply not available as the company focus is too narrow
and/or the industry is not sexy (Exhibit A1 and Exhibit A2). Annually there are approximately half a
million businesses created in the USA, and only 600 to 800 companies receive venture capital funding.
For asset light businesses venture capital is simply not available.
Did you know that the VC’s over the last decade returned their investors on average less returns
after costs than standard fund indexes (Exhibit bottom right)?
VC’s swing for homeruns and yet only average 8 to 24% percent investment returns. Plus the legal
responsibility to maximize returns to their shareholders and not the invested company shareholders
capitates funding flexibility for entrepreneurs. At the end of the day VC’s are fiducially responsible to
their investors and not to entrepreneurs.
Entrepreneur Friendly Capital is an Alternative to Venture Capital
An alternative to venture capital (VC) funding is capital that preserves the founder’s equity and has
flexible payment terms controlled by
Historically, startups have raised seed
funding from friends and family
money and/or angel capital to create
an initial product or service in the
market to validate the initial idea.
Entrepreneur friendly capital is a flexible investment loan that preserves
the founder's and key employees equity.
Exhibit: Growth Capital Funding Options1
There are better options for
entrepreneurs. Most business owners have
heard all about venture capital funds as a
source of funding for startups and early-stage
companies. But what about profitable
companies who want to preserve their
equity— where can they go for their
“Entrepreneur Friendly Capital” works for
the entrepreneur and has the following
Access to capital and debt that
preserves the founder's and key employees'
Blended instrument combines the
best of equity capital and debt financing.
Can be converted to debt at an approved rate.
Does not inhibit the cash flow of the current operations.
Growth capital without loss of control or dilution.
Entrepreneur friendly capital is the alignment of interests between founders and financiers.
For companies in high growth sectors and therefore attractive to the growth capital segment of private
equity investment there exists a large pool of un-invested capital seeking returns by both financial buyers
and corporate strategic buyers.
Jumping the Chasm from a Subscale Company to a Scaled Enterprise
Jumping the chasm from a “subscale business” to what financial investors and strategic buyers consider a
“scaled enterprise” is really difficult2
. Did you know that less than 1% of new business achieves $10
million in annual revenues in their first ten years?
Of these, six out of every ten fail to “jump the chasm from subscale or scale”. For any businesses,
growing beyond subscale requires a smart plan for growth. The three most common reasons cited for
failure by owners include:
1. The business value proposition is not demanded and differentiated sufficiently (i.e. the market
opportunity is too small).
2. The business model execution is not profitable at scale.
3. Leadership & culture barriers derailed growth and profitability.
Association for Corporate Growth http://www.acg.org/global/growthstories.aspx
PricewaterhouseCoopers MoneyTree™ Report Data http://www.pwcmoneytree.com/
National Venture Capital Association & Thomson Reuters www.nvca.org/
Define Success Differently. Define Success as Wealth Creation.
It’s an old but true cliché: Businesses are either growing or dying. We understand the challenge of
positioning your company for long-term success. We’ve been there – as entrepreneurs and operators
focused on building businesses and engineering wealth creation. Creating wealth not only requires a great
business staffed with a talented team; it also requires a strategy for wealth creation. Plus, owners do not
cash large checks until their companies achieve scale.
Jumping the chasm…
Current State Wealth State
Governance by the founders Governance by a board of directors including founders and
Leadership team is the management team Leadership is coupled with Management Science and an
engaged employee culture.
Growth is organic Growth is a portfolio.
Portfolio of products/services beyond the initial sell
does not exist
The customers lifecycle is proactively managed.
Raving Fans are known but not scientifically
Raving Fans create a lower cost of sales.
Scalability depends on 1 location or 1 team of people Scalability is best in class.
Key performance indicators are best in class.
Strategy relies on the founders Strategy is a perpetual process both bottoms up and across
Entrepreneur Friendly Capital FAQs
Question: At what stage does Entrepreneur Friendly Capital become available?
Answer: Capital is available once the following criteria are met:
The business plan for growth is documented and validated by greater than $1M EBITDA profitability.
The strategy, vision, and leadership team is defined and aligned.
The business key performance indicators illustrate scalability and outperform the competition (i.e. are
“best-in-class”). i.e. Validated capital efficient business with high margins such as recurring revenue
models such as SaaS and subscription services.
Growth capital needed to improve valuation by jumping the chasm from a subscale business to a large scale
Question: What is the process?
Answer: Like any investment, due diligence of the financials, business plan and operating plan, and interviews with
the team are conducted. Upon completion and acceptance capital funding is readily available.
Question: How can I learn more?
Answer: Email us at ephor[at]ephorgroup.com for a market landscape and valuation for your industry.
For more information contact:
Ephor Group Founder Garry E. Meier
Creating Wealth Through Growth by Overcoming the Chasm and Growing from Subscale to Scale
Did you know that from 1995 to 2009, privately funded capital backed companies grew sales by 133%,
while the average United States company grew sales by 28%3
Clearly capital is needed for growth. The problem is it takes a lot to transition from a small subscale
company to a large scaled company including new
customers, new business model execution requirements to
achieve significant market share, upgrades in your
leadership team and culture, and growth capital to scale the
business to match new demands.
Of the 1,000,000 companies with 20 to 99 employees fewer
than 1 in 4 achieve 20%+ year over year growth.
These emerging companies are incredibly important to our economy as they represent well over 4x the
average American company’s sales growth and nearly 7 times their new job growth.
For entrepreneurs that want to create wealth for themselves and their employees and not only their
investors they must choose a capital funding solution which preserves equity as they grow.
Capital backed companies grew jobs by 82%, while all other companies in the U.S. economy grew jobs by 12%. Source: GrowthEconomy.org
How do your Unit Economics compare?
Get down to a unit-based economic systems — such as gross profit per person per hour.
Key Metric: Gross Profit Margin as a Percentage of Labor Costs, needs to be a real focus area. Don’t
hire resumes first… create a more efficient and productive process… then the resumes.
THE EPHOR APPROACH
The sum of all your hard work is the culmination of your firm's valuation. We ensure entreprenuers
realize the value of their creation.
Growth Capital Engineering
Human Capital Supply Chain
Wealth Modeling and Planning
THE EPHOR ADVANTAGE
We judge success based on wealth creation of the company.
Key Metrics: Unit Based Economics, Scalable Assets, Customer Revenue Waterfall.
Key Performance Indicator: Company Valuation.
Results: Growth. Market Share Positioning. Enhanced Valuation.
Creating Value thru Acquisition
Growth Capital Financing, Recapitalization
M&A Corporate Development
Merger and Acquisition Documentation
Market & Geographic Expansion, Portfolio
Middle Market M&A Deals
Proprietary Deal Flow (Deal Sourcing)
Strategic Alliances, Joint Ventures
Workforce Management Planning
Whether you are exploring acquisition or expansion; we will help to find, evaluate, and integrate multiple
opportunities to solve the value equation of your wealth plan.