Before the (Banker) Bake-Off, Cultivate a Great Chef or Two

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They were immortalized in literature by Tom Wolfe as “Masters of the Universe” in Bonfire of the Vanities.

Michael Lewis described them as “…a breed apart, a member of a master race of dealmakers” with “vast, almost unimaginable talent and ambition” in his book, Liars Poker.

At one time, 44% of Harvard’s MBAs went into finance and more than 1 in 10 became investment bankers.

But, following the financial collapse in 2007, and the dissolution of famous firms like Salomon Brothers and Bear Stearns, a lot of talent left moved to hedge funds and private equity. Venture capitalists replaced investment bankers as the media’s celebrated dealmakers.

The Economist even wrote stores like “Banks? No, thanks!” detailing how graduates from leading business schools were more drawn to consulting and tech firms than investment banking.

While they may not be seen as the other-worldly beings that they were in times past, I continually promote investment bankers as a wonderful resource for entrepreneurs, executives, board members and investors. Moreover, having worked a variety of bulge bracket and boutique firms, I find investment bankers to be among the most generous in sharing their knowledge and insights to develop long-term relationships with prospective clients.

I find investment bankers to be among the most generous in sharing their knowledge and insights…

If you want to know what’s really going on in your industry, talk to an investment banker. And, while most business people think about investment bankers demonstrating value in the context of transaction execution, you should cultivate these really smart people before the bake-off… that is, a capital event like an IPO or a sale.

Here are six reasons why.

1. Information about industry trends. Investment banking firms tend to organize their marketing efforts around an industry focus, they have likely competed for engagements or potentially represented similar firms in your sector. The preparation for these projects is intense and requires significant research and background information. Meetings with bankers can provide an opportunity to learn about important industry trends and recent events and these discussions provide you with a low-pressure opportunity to learn more about their qualifications.

2. Insight about your competitors. Investment banking firms frequently attend industry events and may meet with management teams of businesses that compete with your business (whether they win the mandate or not) and often have insight into the business of your competitors.

3. Advice on your business strategy. Investment bankers see lots of businesses and exits. This experience provides them with a knowledge base to render sage advice on strategy, positioning, pricing, and distribution, etc. Coupled with their knowledge on the values of the businesses upon exit, investment bankers can be an excellent source for advice on strategy.

4. Introduction to executives. Investment bankers active in your industry sector are networked with executives or aware of executive changes. As your business grows and evolves, you may be looking to add an executive to your team. Investment bankers can be an excellent source for introductions to potential hires.

5. Referrals to sources of capital. Venture capital and private equity firms frequently engage investment bankers to work with their portfolio companies. As a result, they have a significant number of contacts with these capital sources. As a growing business, you may find that you require additional capital that does not warrant an engagement of an investment banker. Bankers are happy to provide referral to potential sources of capital as it endears them to you as a prospective client and equity sources for providing a potential opportunity.

6. Feedback on your pitch. Since Investment bankers have the opportunity to review plenty of company pitches, they can provide great feedback on the company presentations. Sharing your pitch while developing a relationship with an investment banker is an excellent opportunity to learn about their qualifications in potentially representing your business in the future.

Take note of tombstones for recent transactions in your sector as to which firms are active and target developing relationships with these firms. In addition, BankerAdvisor is a resource for discovering and learning about investment banking and M&A advisory firms that may help you identify firms with a track record focused on your industry sector.

Mike Casey

Mike Casey

Mike Casey is TechCXO’s co-founder and a partner in the Finance/Operations practice. See his full bio.

Catabasis Pharmaceuticals

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Catabasis Pharmaceuticals

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THE CHALLENGE

Building and financing a drug discovery platform company.

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THE SITUATION

Within two months of creating Catabasis Pharmaceuticals, the company’s two founders had developed an innovative approach to drug discovery and development.

Catabasis wanted to build a portfolio of new medicines for their focus area.

Catabasis had initially funded the company through a round of convertible debt but needed a financing plan, an infrastructure and systems to move forward.

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TECHCXO INTERVENTION

TechCXO provided overall strategic direction as well as finance and operations systems — everything from cash management to budgeting and forecasting to advising on organizational and employee needs.

TechCXO helped to hire the company’s full-time in 2013 and has continued to provide financial leadership through the recent IPO.

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THE OUTCOME

Catabasis raised several rounds of equity financing to fund its development and expansion. TechCXO helped to develop the company’s financial and operational capabilities. Catabasis had its initial public offering in June 2015 (CATB) and now has two Ph2 assets in the clinic as well as a robust portfolio of investigational new medicines for the treatment of various disease indications.

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“TechCXO has led finance and key operational functions from our founding, through early capital raises, to our IPO.”

Jill Milne, Founder & CEO

Catabasis Pharmaceuticals

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TechCXO Client MemberSuite Raises $11M Series B

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TechCXO client MemberSuite raised $11 million of Series B venture funding from lead investor Revolution Ventures on September 26, 2016.   Fidelis Partners, Angel Investment Management, Accomplice Partners and Alerion Ventures also participated.

The company plans to use the funding to add over 50 team members, with a focus on hiring in sales, marketing and engineering in the Atlanta region. With the round, the company has now raised a total of $19.6 million in funding to date.

MemberSuite is a provider of association management software (AMS) for associations and nonprofit organizations. The company develops software that helps trade associations manage fundraising, event planning, accounting, dues-collection and other functions.   It delivers its web-based, back-office software on a subscription basis.  TechCXO partner Todd Guthrie is engaged with MemberSuite.  Read the full release here.

 

Robotic Automation Leader and TechCXO Client Soft Robotics Raises $20M

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Soft Robotics’ proprietary materials and machines are doing incredible things for food, beverage and advanced manufacturing industries. The company’s innovation allows a robot to grasp and manipulate items of varying size, shape and weight, including a tomato, bagel (see images) and even cupcakes. TechCXO is proud to have assisted Soft Robotics’ capital raise of $20M in an oversubscribed funding round.  Boston-based TechCXO Partner Peter Biro has been assisting Soft Robotics in accounting and finance functions, as well as advising the company on its capital raise.

The following is from Soft Robotics’ press release:

CAMBRIDGE, Mass., May 2, 2018 /PRNewswire/ — Award-winning industrial robotics company Soft Robotics announced today that it has raised $20M in an oversubscribed funding round. The new investors include Scale Venture Partners, Calibrate Ventures, Honeywell Ventures, Tekfen Ventures, Yamaha Motor Co., Ltd., with Hyperplane Venture Capitalleading the round. Existing investors include Material Impact, ABB Technology Ventures, Taylor Farms Ventures and Haiyin Capital. Joining the Board of Directors will be Rory O’Driscoll from Scale Venture Partners and Kevin Dunlap from Calibrate Ventures.

Soft Robotics unlocks robotic automation for large, meaningful markets and labor starved industries such as food and beverage, advanced

Soft Robotics’ machines can grasp delicate items

manufacturing and e-commerce. Leveraging patented material science and AI algorithms, Soft Robotics designs and builds automation solutions and soft robotic gripping systems that can grasp and manipulate items with the same dexterity of the human hand. Since the company’s inception, its technology platform has experienced substantial customer validation and adoption, with over 80% year over year revenue growth and production installations running 24/7 for Fortune 500 companies and Dow 30 components, including Just Born Quality Confections (maker of Peeps).

“We’re proud of the team’s work to date to scale up the Soft Robotics’ technology platform and gain significant commercial traction across our customer verticals, said Soft Robotics CEO Carl Vause. “We’ve been able to address some of our customers’ largest supply chain and automation challenges, from picking and packing fresh produce and raw proteins, to bin picking and retail order fulfillment.”

ABB, a leader in robotics and industrial automation, sees the investment in Soft Robotics as part of ABB’s overall strategy to shape the future of industrial digitalization and the automated warehouse.

“We saw early on that the Soft Robotics solution is a paradigm shift in the way our machines interact with their environment, especially in their ability to grasp deformable, delicate, binned or otherwise complex items,” said Grant Allen, Head of Ventures at ABB Group. “As a leader in industrial manipulation with over 300,000 robots deployed, ABB sees a huge number of amplifying automation solutions but the intuitive control software Soft Robotics has created combined with their agile gripper is a linchpin of the automated warehouse.  In an era of increasingly high mix, low volume production cycles coupled with the need for pain-free automation configurability, we are also extremely excited about the direction Soft Robotics is taking their core technology with SuperPick, allowing ABB arms to do more with less training, greater accuracy and increasing autonomy.”

Soft RoboticsThis funding round comes at a pivotal time in Soft Robotics’ growth. Having proven the economic benefit and scalability of the technology, the company is today at a critical moment of accelerating its commercial penetration plans and new product roadmap.

“As investors we aim to match innovative technologies with major, unmet market needs,” said Rory O’Driscoll, Partner at Scale Venture Partners. “The $40B industrial automation market is large and growing, but largely limited to industries like automotive and semiconductor. Existing rigid robotic technology just doesn’t work for industries such as food and beverage or e-commerce, because of the variability of the product and the unstructured nature of the environment. With so many industries facing mounting pressure to automate, we aren’t surprised that there has been such rapid adoption of Soft Robotics’ technology.”

For more information about Soft Robotics, please visit www.softroboticsinc.com.

About Soft Robotics

Soft Robotics designs and builds soft robotic automation systems that can grasp and manipulate items of varying size, shape and weight. Spun out of the Whitesides Group at Harvard University, Soft Robotics is the only company to be commercializing this groundbreaking and proprietary technology platform. Today, the company is a global enterprise solving previously off-limits automation challenges for customers in food & beverage, advanced manufacturing and e-commerce. Soft Robotics’ engineers are building an ecosystem of robots, control systems, data and machine learning to enable the workplace of the future.

Contact:
Elyse Winer
Company Representative
Phone: (617) 645-5183
ewiner@softroboticsinc.com
www.softroboticsinc.com

Additional News Stories

Cambridge-based Soft Robotics to hire, move HQ following $20M raise

Soft Robotics raises $20 million to expand operations

 

Wurk Secures $11 Million in Funding to Facilitate Further Expansion and Support the Growing Cannabis Workforce

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Leading cannabis Human Capital Management company plans to utilize this capital to bring in-demand technology and services to the market while investing in customer experience

Wurk, the first and leading Human Capital Management company for the cannabis industry, is pleased to announce the raise of $11 million in a funding round led by returning investors Poseidon Asset Management and Arcadian Fund. Existing investors Altitude, Salveo Capital, Phyto Partners and The Arcview Group also participated in the round.

Wurk plans to utilize the capital to enhance the client experience while expanding its cannabis HCM platform, including the launch of managed services. This will provide its growing customer base with dedicated human resource, payroll and tax experts. The company will also implement a robust analytics engine to provide highly sought-after data for the cannabis industry, allowing employers to increase operating efficiencies by benchmarking themselves against industry best practices.

“Our technology ecosystem allows cannabis companies to recruit, retain and optimize the efficiency of their rapidly growing workforces,” said Keegan Peterson, Founder and CEO of Wurk. “Multiple new states came online in 2018, and with a number of markets planning to implement a regulated cannabis program this year, the industry needs these critical business applications in place to support it at scale.”

“After participating in Wurk’s previous two funding rounds, we are thrilled to have the opportunity to invest in the company yet again,” said Emily Paxhia, Managing Partner at Poseidon Asset Management. “As investors focused on the cannabis space, we regularly see the HR, accounting, and tax challenges that startups in the industry face on a frequent basis. Wurk’s solution helps ease that massive compliance burden and creates a huge investment opportunity in doing so.”

TechCXO Managing Partner Rick Nichols is supporting Wurk as COO and Board Member.

Wurk helps cannabis companies manage payroll, human resources, timekeeping, scheduling and tax compliance, and minimizes compliance risks in the ever-changing cannabis regulatory environment. The company uses its expertise and trusted partnerships to provide guidance on 280E tax law, accounting and banking. Its platform is designed to scale nationally with the growth of the industry, while incorporating the local laws and regulations unique to individual states.

About Wurk

Wurk exists to help underserved businesses fortify, comply, and thrive in the face of uncertain regulatory environments. Designed specifically for the cannabis industry, our platform and managed services, allows employers to protect and streamline their operations, while providing an environment where people are a priority every step of the way. The intuitive solution automates the most complicated and risk-prone processes associated with Human Resources. For more information visit enjoywurk.com.

SOURCE Wurk

Related Links

http://enjoywurk.com

Fundraising: A Primer for the CEO

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For non-finance professionals, much of what a CFO does is a mystery and more than a little daunting.  Cash flow statements, 409a valuations, tax, audit, treasury, stock options, D&O insurance are among the many topics that strike fear in the hearts of CEOs, especially those new to the role.  But more than any other topic in finance, the concept of fundraising is often the most daunting and misunderstood.

How much do we need?

When do we need it?

Where do we get it?

Under what terms?

After 30 years of being a CFO and helping more than 50 companies raise an aggregate of a billion dollars plus in debt and equity, I have some guidelines and advice for how companies should manage their fundraising process.

Patience

When it’s you, your partner and your dog working out of your basement, you have a unique opportunity to think about your business before deciding what it is you need to fund your plan.  This thinking stage evolves into a more detailed plan, usually in the form of a slide deck (20 – 30 slides, no more!) that follows a traditional outline and describes the product, the team, the market, the opportunity and the underlying financial plan.

Based on your assumptions and estimates, you should be able to articulate what it will take to launch the business.  The funding required is typically adequate to fund the company for 12+ months and/or to a specific value inflection point.  The key is to take the time to do your planning and take as little money as possible to support the launch.  Ideally, you should self-fund the business until you’re ready to talk to outsiders.

Friends & Family (F&F)

If you need more time or more money than you can commit to yourself, then the next option is the so-called Friends & Family round.  This is where you hit up your parents, siblings, Uncle Joe and others who are willing to invest in you, no matter what your business plan.

Unless you are lucky enough to come from a wealthy, extended family and because there are generally not many of these people in the first place, F&F rounds tend to be relatively small – no more than $1 million.  The process is quick and simple, but although these people can be very supportive of you, the risk of failure is still very great, and you should be honest about that.  You should know that one’s heart often follows the pocket book.

Angels

A step up from the F&F, individual investors or “angels” are your next best option.  Angels are high-net-worth individuals and often invest in groups to help streamline the process.  Angel rounds can be anywhere from $500k to $3 million and many of these people are experienced entrepreneurs who can add value with their operational acumen or their connections.

The biggest problem with raising angel money is that it is not unusual to have 20 or 50 or even more individuals who have invested.  Because angels are often entrepreneurs themselves and want to know what’s happening in the business from day to day, this can be time consuming and expensive to manage.  The term “herding the cats” is often used to describe the process of managing your well-meaning, but inquisitive angel investors.

Terms and valuation/dilution

It’s worth pausing here to discuss the mechanics of fundraising.  The best advice I can give is to keep it simple and don’t be greedy.  For the F&F and angel rounds, I recommend using a convertible note as a way of keeping it simple.  This avoids the inevitable fight about valuation and ownership until a later date.  Any funds received will be invested as a note payable and will accrue interest until some qualifying event occurs, usually a larger financing round.  Upon closing a qualified financing round, the principal and interest will “convert” into the new security, often with some sort of discount for having taken the early risk.  The simplest form of such a note is a SAFE or Simple Agreement for Future Equity that can often be as little as 1 or 2 pages.

The ownership / dilution issue is the most difficult for an entrepreneur and I’ve often seen companies ruined because the owners could not accept the terms that were offered and end up with $0.  This is your baby and it’s really hard to let go, but you have to be realistic about what investors will expect and what you’ll need to be successful.  The best thing to do is to run a process and have more than one option available so you have some leverage.  I always tell my clients that you don’t get paid on your Series A (or B), rather you get paid when you sell your company or if you are very lucky, when you go public.  So don’t sweat the difference between 5% and 10% ownership.  If you have good, patient investors and are successful, it won’t matter.

Venture Capital

VCs are the first of the so-called institutional investors and will invest in early stage, high risk opportunities.  They will invest anywhere from $2 million to $50 million and often specialize in a specific industry.  This is a broad range and there are VCs who focus on the company formation end of this range (typically Series Seed rounds) and those who focus more on later investments (Series A and beyond).  These firms are staffed by only a handful of partners, the best of whom have already been successful entrepreneurs.  They in turn will have raised money from larger institutions and are responsible for managing and investing huge sums of capital.

From the outside looking in, VCs can seem pretty intimidating with their teams of Harvard MBAs and seemingly unlimited access to capital.  And they are tough to reach.  The best advice to getting the attention of a VC is to use your network and get a “warm” introduction anyway you can.  While many VCs claim to be risk takers, like any good investor, they will be looking for deals with higher rewards and lower risk.  If you’re part of a team that has built successful companies or are in a hot space, then your job is a little easier.

Growth Equity

As the name implies, growth equity players specialize in investing in mid to late-stage companies that have de-risked their business and need significant capital to grow, either by investing in manufacturing, sales & marketing or just building the team.  Unlike VCs who will invest in companies with no revenues or profits, growth equity players are looking for companies with traction, usually $5+ million in sales and if not profitable now, then within sight (e.g. less than 12 months) of achieving profitability.

Strategic investors

So-called strategics are companies in your industry who may be interested in investing in your company to nurture innovation or expand into new lines of products.  On the one hand, a strategic investment can be a great way to gain valuable knowledge about processes or markets and leverage the might of a larger player for things like sales distribution.  However, having a strategic investor can sometimes eliminate a set of buyers because they view the investor as a competitor.

Government grants

There are numerous government initiatives to support entrepreneurs and they vary widely by industry and design.  There are loans, grants or in-kind services that can help you build your business.  Of course this assistance comes with certain strings attached, most notably rigorous reporting requirements that can be challenging for small businesses.  The Small Business Administration (SBA) is a good place to start to research the various options and how they might apply to your company.

Mergers & Acquisition (M&A) 

Unless you go public, M&A is the most likely way to generate liquidity for you and your investors.  This is where all your hard work pays off and you reap the rewards of your success by selling some or all of your company.  You can do this yourself, but I recommend employing a professional such as a business broker or investment banker.

The inflection points & metrics

Inflection points are the key stages in a company’s life cycle where value increases exponentially.  In product companies, examples are the first prototype, the first commercial revenues, market expansion and profitability.  For pre-revenue companies such as biotechs, examples include identifying a lead drug candidate, producing the compound and then the various stages of the FDA approval process through to commercialization.  For any type of company, inflection points might include hiring a crackerjack CEO or doing a deal with a strategic partner.

Metrics are used to help both the company and investors quantify when these inflection points occur.  Companies use metrics such as sales growth, average selling price (ASP), gross margin, earnings before interest, tax, depreciation and amortization (EBITDA) or net income to measure their progress against goals.  It’s critically important to establish the right metrics for your team and report on them in an accurate and consistent fashion.  Knowing your business’ metrics and being able to demonstrate growth and strength in the company is the best way to support a sales process.

Investors often look at the same metrics but will typically use a multiple of revenues or EBITDA (a good proxy for cash flow) as a way of valuing your business.  You should be well-armed with examples of companies that are comparable to yours and how your metrics stack up against your peers.  You can then quantitatively demonstrate the worth of your business in a sales cycle.

Closing the deal

Fundraising takes an inordinate amount of your team’s time and it can often feel that you are neglecting your core business in the chase for dollars.  Experienced teams will know how much they want to raise and where that money will take them before they have to raise more.  They will also cast a wide net, run a process with multiple interested suitors and enlist the help of friends and advisers to augment their team and make introductions.

The process can be nerve wracking and at times, disappointing.  But there’s nothing more gratifying to entrepreneurs than closing a deal that can help them execute on their dream.