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Q&A: Recapping the CCTW CEO Forum

Insights from the CCTW Alumni CEO Forum: Raising the Right Capital

Earlier this year, Colorado Companies to Watch held an Alumni CEO Forum where previous CCTW winners and current sponsors appeared as panelists to discuss their experiences and strategies with raising capital for business development.

These exceptional panelists shared insights and warnings about navigating the sometimes murky waters of finding the right kind of investors to support burgeoning businesses:

Heather Potters, Co-founder of PharmaJet (2011 CCTW Winner); Jon Hernandez Principal of PeakMed (2017 CCTW Winner); Mark DeVito, Managing Director of Bank of America Merrill Lynch (2018 CCTW Diamond Sponsor); and Bill Nack, Managing Director of The Forbes M+A Group (2018 CCTW Platinum Sponsor).

Between these CCTW Alumni and Sponsors are hundreds of millions of dollars in raised and doled out capital.

Q: How do you choose between the different types of capital investment markets?

Jon Hernandez: There are three things that I like to keep I mind when I think about how to raise capital. First, I like to thoroughly understand the risk profile of the transaction or what we’re shooting for as an organization. How to we define success and what does that target look like? Then the use of funds, and the amount needed.

When those three things are defined, I would come back and reason: Is it venture capital based? Am I using private equity? Is this a working capital initiative? Do I need an angel investor? Or is it that I need to go buy other companies and get some acquisition financing around that? It’s important to understand those categories, but you have to also understand the risk and use of the funds before starting.

Heather Potters: I think the most important thing is to try and think about where your business is, and what’s appropriate. And sometimes, it’s also who’s behind the money. For me, we’ve chosen to raise funds from individuals with high net worth because … sometimes institutions organize their capital structure to make sure that everyone else is disadvantaged so that they can simply generate their return. Not everyone is like that, but it’s about making sure that you understand who is behind that money because it’s like getting married; it’s a relationship. You want someone who understands your world and your business, so their expectations are not unrealistic.

Q: We often talk about how in Colorado, you can absolutely find sources of early stage capital, but it’s hard once you cross about $25 million to $35 million threshold to find sources of capital here locally. What do you see changing in the capital markets right now for Colorado’s benefit?

Mark DeVito: There’s a tremendous mount of capital out there. Your alternatives and choices are vast as a business person today. There are a lot of levels and layers of capital around, you’ve just got to find it, you’ve just got to network, network, network! It’s the most important thing in raising capital. Everyone is out there looking for companies to invest in. The competition to put their money to work is huge … But how do you get your name on the top of the pile? In Colorado, things like (the Association for Corporate Growth) is a network of hundreds of capital providers eager to put money to work. The advantage goes to the person with a good business plan. These capital providers are competing with each other to find the best opportunities. Check you network – the lawyers, accounts, bankers; people you know. They can lend a great amount of credibility and opportunity to you.

Q: How are capital markets evolving and changing in Colorado?

Bill Nack: We’re seeing multiple parties making aggressive overtures toward our clients. There’s about a trillion dollars in dry powder on the sidelines in the private equity world. If there’s an opportunity to put some debt on a deal, then they’ll do that as well. There’s just no shortage of capital. But from an overall availability of cash … there are different shades of green on that dollar bill. You could work with somebody who doesn’t have the key connections to help you or you could find someone who does have those connections. The nice thing about this market is that there is no shortage of choices. Do you due diligence with the group that you’re going to work with, because they will be a major component to your overall success. There’s also huge flexibility in capital structures and ways that alternative lenders are willing to work with groups just to deploy capital. We are seeing different ways of providing that key capital that companies need.

Q: What kind of deal structure are you seeing with private equity these days?

Heather Potters: I think that the wonderful thing that’s happening in the private equity world is that it’s like speed dating. You’re trying to find the person at the right place in the right fund at the right time. Fifteen to 20 years ago, private equity groups had venture partners with specific experience. What you find today, I think, is a focus of a fund. So it isn’t plain vanilla; we do everything. Then you can find that deep expertise, that they’ve invested in several of the same kinds of businesses and industries. I think that’s really useful capital.

Q: What is capital alignment?

Jon Hernandez: All of my battle stories were a result of not knowing what that term is! As an entrepreneur or company founder, I’ve always known what success looks like for any company that I get involved in. Entrepreneurs traditionally know what that success is for them. Investors, on the other hand, have a different definition of what success is based on their own criteria. So, for me, capital alignment is where the overlap of your definition of success is, and the investor’s idea of success is. It’s important to know what your investor’s definition of success is. Is it just an internal rate of return? Is it impact where they want to actually make a difference in the community? In my experience, problems will arise when those two fall out of alignment.

Q: What shouldn’t you do?

Bill Nack: I started my first company at 23, and our first capital raise was a Chase credit card with a $30,000 limit. It took no time to max that out. So, when we think about ways to not raise debt or equity, that sort of thing qualifies. But when you’re 23, you do what you can! But that company grew 400 percent every year for almost six years before we did a majority recap with a private equity group. I went on to start and sell five more businesses after that. I was like fixing and flipping houses, but with a lot of capital!

Special thanks again to David Armitage, CEO of Cartasite, who moderated the panel and discussion. For more information, or to get in touch with any of the speakers, email