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This episode provides a business coaching lesson on raising capital during difficult economic times.

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Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Notable Quotable: "There is always plenty of capital for those who can create practical plans for using it." - Napoleon Hill
  • 7 Concepts You Need To Know: 1) 5 reasons to raise capital 2) The investor wish list 3) The recipient wish list 4) The 12 common sources of capital 5) The 5 C's of credit 6) 11 keys to putting your best foot forward 7) 8 mistakes to avoid when raising capital
  • 5 Reasons To Raise Capital: 1) business acquisition 2) purchase real estate or equipment 3) business expansion opportunity 4) partner buyout 5) cash flow issues

 

[MUSIC PLAYING]

 

-What's going on, guys? My name is Daniel McKenna, business coaching assistant. I'm the host for today's episode.

Do you remember that movie where that guy get bit by that radioactive bat so him and Gandalf had to ride this huge bird creature through the forest and under this Roman coliseum and fight for their freedom from all the slaves? No, I don't remember what that movie was called, either.

But today we're sitting down with Clay Clark and with Sean Kouplen And we're talking about raising capital when you want to start a business in a challenging economy. If you don't know who Sean Kouplen is, check this out.

 

Specifically, we're talking about how hard it might be to raise capital in an economy that's sort of challenging. Well, Sean is a banker. He's an owner of a bank. He actually knows what people are looking for when they come to try to get money.

And he's going to teach you the seven concepts you need to know to actually be able to raise some capital. Sean knows what he's talking about. You want to pay attention.

If you watch today's lesson, and then don't actually learn anything from it and actually apply it to your life or your business, today's lesson is going to be more meaningless than relying on Seinfeld for his acting capabilities. Funny guy. Worst actor on the show. Very rich. Hi Jerry.

 

-Hello, my friend. How are you?

-Morning, Clay. I'm good. How are you?

-I am doing great. And I am seriously, sincerely, really super excited to talk to you about this topic. Because you are the chairman, the president, and the CEO of Regent Bank.

-All three-- the trifecta.

-The trifecta. The triumvirate. And so we're talking about raising capital in a challenging economy-- business coaching for the seven capital concepts you need to know.

But before you unleash this fire hose of knowledge that you just don't get in college, I want to read you this notable quotable and I want to see what your thoughts are.

Napoleon Hill, the bestselling author-- actually, the top self-help author of all time- said, "There's always plenty of capital for those who can create practical plans for using it." Sean, you're a self-made success story. You obviously own a bank. You're a successful investor. Do you agree with that statement?

-I do. In fact, when we purchased Regent Bank back in 2008, I visited with an investor of ours named Tom. And I was real nervous about could I raise the capital or not.

We literally started with zero, made a personal investment, and needed to raise $15.5 million dollars. And my friend Tom told me-- he's a 50 year business person-- and he told me at the time-- he said, "The easiest thing you'll ever do is raise the capital. The operating and fulfilling your business plan will be much harder than raising the capital."

-Really.

-And I thought that made no sense to me. But based upon my track record, the banking industry, and those types of things, we raised $15.5 million in less than a month.

-Now I don't want to hype you up too much, because I know you're a humble guy. But I want to share this with the thrivers. Because 2008-- I mean, economically speaking, that was sort of a window of American history where we had some challenges.

[DRAMATIC MUSIC PLAYING]

 

So when you talk about raising money in a challenging economy, you've done it. In 2014, things are kind of rebounding. A lot of people think things are systems go. But I mean, you did it in a challenging time. So I'm excited to talk to you about doing this here.

-Thank you.

-So business coaching for the seven concepts we need to know. One is five reasons to raise capital. Two-- the investor wish list. Three-- the recipient wish list.

Four-- the 12 common sources of capital. Five-- the five C's of credit. Six-- 11 keys to putting your best foot forward. And seven-- eight mistakes to avoid when raising capital.

So at this point, what I'm going to do is I'm going to get into each one of these points and I'll let you sort of give us some business coaching clarity on it.

-OK.

-So concept business coaching for number one-- five reasons to raise capital. Reason one is business acquisition. Sean, when you say business acquisition, can you walk me through what you're talking about?

-Sure. So we're going to go through five different reasons that a business or an individual would want to raise capital. And the first one that we list is the most common, which is to acquire a business or to buy a business.

And the reason we're going to talk about this-- we're going to talk about various ways to raise capital. So you can raise it through a bank or you can raise it through private sources.

The ideal situation is to raise it through a bank. But many times you see an excellent business opportunity that you cannot bank. There may not be enough collateral. There may not be enough proven history. You may not have the experience in that industry.

And so first and foremost is raising the capital to go buy a business. Or it can be, frankly, buying an asset. It can be buying a piece of property. But we're going to focus more today on business acquisition.

-And this isn't weird. This is common-- business acquisition. This is common.

-It is. And raising capital for a business acquisition is common. A lot of times people think that I found a good deal, I think I could be very successful at this, but I don't have the money, so I'm not going to do it.

There are millions of people in this world whose biggest concern is how to get a return on their cash. They're either managing money for someone else, or they are setting on a lot of liquid assets and they're trying to get a return.

So the practice of going into the market to pitch your idea, to raise capital, is very normal. Business coaching truth: Just because you don't have the money doesn't mean you can't get a deal

done.

Learn more on how to start a business on Thrive15.com

Featured Coaching Excerpt - Notes & Transcript, Part 2
  • Definition Magician: Collateral - Something pledged as security for repayment of a loan, to be forfeited in the event of a default.
  • Lesson Nugget: Business expansion is often the best use and reason for raising capital. This is because a business has shown its promise, but could use cash to grow exponentially.

 

-But I want to give the thrivers just one really third grade business coaching example that I know of just to share or give you a better example there.

Magic Johnson recently was-- famous, the headlines were, Magic Johnson buys the Dodgers. Well it wasn't like he personally had $2 billion or a billion dollars sitting around. He and a team of people bought the team.

And this happens all the time with sports, where one guy is kind of like the figurehead, but everybody puts in money together. This is very, very common. That's just one example to share with you.

Now moving on to business coaching for reason number two. Purchase real estate or equipment. How often do you see people needing to raise capital for this reason-- to purchase real estate or to buy equipment?

-Most of the time when you're buying real estate or equipment, you can get bank financing because you have a hard asset that the bank can use as collateral. However, many times an individual may need some down payment money. So maybe they need to put down 20%, and they only have 10%. So they go find an investor for the other 10. Or perhaps they don't have proven cash flow to make the payment, and so they find somebody to guarantee a note.

So it's fairly common. It's less common than business acquisition.

-Yeah.

-But it's fairly common. We see it quite a bit.

-And you use this magic word collateral here, which just to clarify-- can you clarify if maybe someone watching this is maybe new to that term, or maybe thinks they know what collateral means?

-You bet. What will typically happen is whether a bank makes a loan to you, or an individual invests money in you, they will typically take the asset that you're buying as collateral. Business coaching lesson: And all that means is if you are unable to make the payment or service the debt, then they have a security interest in that collateral and can basically take ownership of it; sell it to pay off the debt.

-All right. We're moving on to business coaching for reason number three here. Business expansion opportunity. Talk to me about what kinds of things you're talking about here with business expansion opportunities.

-This one's also very common and frankly is the most-- probably the best reason to raise capital.

-Oh.

-You've started up a business-- we've both been there, Clay, you've started up a business. It is successful and you have opportunities to grow it. You see opportunities within the market. You have the opportunity to hire people. You think that there are marketing strategies that you can use, but you don't have the capital on hand to do that.

So oftentimes-- and again, I was just involved in this very situation with a software company here in Tulsa recently where they had been successful, but they just wanted to take it to another level. So I came in as really a second stage investor, investing in them to allow them to grow.

-OK. Business coaching advice: Again, this is probably the best-- one of the best reasons to raise capital.

So now moving on to business coaching reason number four-- the partner buyout. Sean, this sounds kind of hostile. Could you walk me through some situations where this might come up from time to time, or has come up from time to time?

-Sure. It's not typically hostile.

-OK.

-Normally what happens-- partnerships are very difficult. There's no question about it. The partners-- it's much like a marriage in that the partners are different. A lot of times they look at the world differently. And so I will admit, on occasion, you have philosophical differences where one partner just needs to buy another partner out. They just aren't agreeing on the direction of a company. That doesn't mean one is right or wrong. They just need to agree.

What is more typical however, is that if you and I are partners in a deal-- and let's say that you are just ready to retire-- I'm younger than you are. And so we're partners, and you're just in a different stage of life, so you're ready to sell out your interest. That happens more often than not.

Or maybe you're going in a different direction and you need that capital that you have in our business to go do something else. So there's lots of reasons you would buy out a partner. They're not always because you got into a fight.

But again, if the business is proven and has cash flowing and is doing well, that's a fairly easy thing to raise capital for as well.

Featured Coaching Excerpt - Notes & Transcript, Part 3
  • 5 Reasons To Raise Capital: 1) business acquisition 2) purchase real estate or equipment 3) business expansion opportunity 4) partner buyout 5) cash flow issues
  • Lesson Nugget: Not having cash can severely limit what you can accomplish in your business; raising capital is one way to provide yourself with opportunities.

 

-And I just want to-- I want to make sure if you're watching this business coaching lesson, I know as an entrepreneur you can feel alone sometimes because you have your own business and you have a bunch of employees who work with you, and so you're kind of alone sometimes at the top of the mountain. If this is a situation where you're finding yourself right now, need to do a partner buyout. You're not weird. This is normal stuff. You know, this is things that people do often. So I'm moving on to business coaching for reason number five-- cash flow issues. Sean, for any Thrivers out there who aren't super familiar with this concept of cash flow, or the lack thereof, what does that mean?

-Reason five is the most challenging time to raise capital, but, again, it is possible. This is a business coaching scenario in which you have a business that is the expenses are outweighing the income. And so you have depleted your reserves, and frankly, you need cash to stay alive.

Now you go, well, why would an investor invest in something like this if it's losing money? And the answer--

[CHEERING CROWD]

--is if they believe they can turn it around, some of the best investments we have made personally have been in this space, where you see an individual struggling, but you see why. And many times it's because of a lack of capital. A lot of times it is self-fulfilling. You're trying to run a business. You don't have the cash to run it. You can't take advantage of discounts. You can't buy in bulk. You can't take advantage of marketing opportunities. You can't hire people, and so you're failing.

And if somebody comes along with capital, not only can they turn it around, they can have tremendous success. And as an investor or buyer, you obviously have tremendous leverage in a situation like this. Business coaching tip: So you can get a very large percentage of the company for a fairly small investment.

-And you're pretty good at tightening down the operational systems. So when you say that's a good opportunity for you, you know how to build business systems and workflows and all that kind of stuff.

-I really like both. I do. I like the operational side and the process side of business, but honestly, what I think I have been more successful in is going, OK, this business is in this situation right now. If we injected x number of dollars of capital, what opportunities would that create? And I really like-- I'm like you-- I like the strategy side of business, where I see an opportunity to really grow the top line of the business, too.

-All right, now we're talking about business coaching for capital concept number two-- the investor wish list. So this is the stuff that investors are kind of wanting before they decide to invest in something. And so we're going to go through these here. So here we go-- a high return on investment. Sean, when you say high return on investment, what types of return are you talking about? Are you talking about some astronomical returns? Or what are we talking about?

-That's a good question. So the concept of the investor wish list-- here's the magic of raising capital. OK, the magic is as an investor I have certain things than I am looking for, but then as the business owner or the recipient of the capital, which we're going to go over in just a moment, I have certain things I'm looking for. And as we're going to see, those two things are different, and the ability to bridge of those is where the magic happens.

So the first one is high return on investment. All investors want to get the most they can for their money. So if I put a $100,000 into your company, I want that thing to multiply two- three- five-fold. That is my ultimate objective. However, each and each investor is different. Some investors want cash flow for their investment. They've invested with you, and they want a consistent-- I put in a $100,000. I want to get $1,000 back every month, and I'm happy, if I can just get that return.

Some people will put their money in and leave it for the long haul. They don't need the cash. They are just looking for capital appreciation. So they leave it setting, and as long as you can give them a multiple return on their funds within five, 10, 15 years, they're very happy. So it all depends upon the investor.

Business coaching lesson: But I would say at a typical investor's going to want to see at least a 7% or 8% return on their investment, even in the safest of investments, even if it is a I've sold a building and I'm leasing it to a Fortune 500 company, and it is a certain payback, I'm going to want to at least see 7% or 8%. If I get into something that is a little bit more risky, I'm going to want to see 15%, 20%, 25%, because I'm taking an excessive risk on my investment.

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