Mike Segal, co-founder and managing director at New York Private Equity Forums, talks with the Opportunist’s Managing Editor Leslie Stone about his company’s unique business model.
When Mike Segal returned to New York after many years on the West Coast, he immersed himself in the business community and started attending investor conferences in the hopes of finding attractive opportunities. But he was disappointed by what he was seeing. “Here I was, going to investor conferences in the world’s largest financial center and yet I wasn’t meeting any investors,” says Segal. “I kept asking myself why am I so hard-pressed to find investors when I’m at an investor conference?”
According to Segal, the dilemma had nothing to do with the venues or the organizers and their intention to put together a quality program. “The model itself was the weakness,” he says. “Events cost thousands of dollars to put together. To make them more affordable for participants, they have to be subsidized by sponsors. As a result, they tend to be heavily populated with non-investors such as service providers, attorneys, recruiters and so forth – and in many cases only 10% to 20% of attendees are actual investors. Most of the investors in attendance weren’t even there to see entrepreneurs or make deals—they were there to be judges, panelists or speakers.”
Segal believed he could create a better brand of investment conferences and in 2001 he and a business associate, Bryan Emerson of Starlight Capital, founded New York Private Equity Forums, which would more effectively solve the problem of meeting investors, which is faced by so many entrepreneurs.
Opportunist: Tell us about your investment conferences.
Mike: We pride ourselves on being an investor-attended national funding venue for early and later-stage companies. Bryan and I thought a much better structure would be to establish a trade show model for an event where we would underwrite ourselves with our own capital rather than rely primarily on paid sponsors. We felt that would ensure that 80% to 90% of the people there, not connected with the featured companies, were actual investors.
Opportunist: Is it costly to fund the events yourselves?
Mike: Yes. But, whatever the cost may be to the entrepreneurs, it’s substantially less than hiring a banker or doing guerilla networking and traveling. Our event is really a surrogate for that. Usually companies spend thousands of dollars trying to raise capital by doing road shows to places like Los Angeles, New York, Vancouver or London. We don’t take our clients on the road to raise capital, which can be very costly and time consuming. We bring the road show to the early and later-stage companies whose management does not have easy entrée to investors. Even if an entrepreneur is successful in identifying and meeting investors, their biggest problem is getting multiple parties to look at their investment opportunities to help ensure a timely funding.
In the business community, companies with great technologies and ideas may bubble to the top, but most don’t and must actively seek investors. “If you build it, they will come” mentality is not an effective fund raising strategy. Some of the greatest companies today, such as Cisco Systems, eBay, Starbucks and Staples, came close not to being funded. Many VCs turned them down.
Raising money is a marketing project—it’s not an ad hoc project that you do part time. Every entrepreneur must find a way to identify and meet quality investors under favorable circumstances. We create that for them. What really resonates with the entrepreneur community is how involved we are in helping management craft their presentation and strategy for reaching investors.
Opportunist: How do you help them?
Mike: We help entrepreneurs develop contemporaneous interest in their deal. For example, if you’re talking to only one or two investors, they’re going to control their end of the deal. Our way of doing things gives entrepreneurs more options because they have a platform in which to meet with a number of investors. We are driving efficiency into the fundraising process, which is inherently terribly inefficient.
We are very hands-on with helping entrepreneurs to understand the issues associated with raising capital. We try to mentor them and give them guidance—if it’s helpful to them—on how to raise capital and the key ingredients that will ensure they can get funded on a timely basis. We not only help them prepare for the event but we are also very active in assisting them follow-up.
Opportunist: Would you say you are filling a void since banks aren’t lending to small businesses as freely as they were in previous years?
Mike: Yes, particularly with early-stage companies and small businesses that cannot get bank financing easily. Many of the investors they were relying on may no longer be doing investing. It is even difficult for an established company to get money to grow.
If you look at venture capital investments of today in the United States, probably 90% of all the deals that get funded are funded through an investor who either knows the entrepreneur or is referred to them by a source they deem reliable. It’s almost impossible for a company without an entrée to even get up to bat. Investors come to our events to see deals that have been professionally screened and vetted.
Opportunist: How do you select companies to present at your conferences?
Mike: Our selection isn’t a contest. We don’t look at 100 companies and try to pick the Top 10. I don’t know that eBay would’ve won a business plan competition. We look at each company on its own merit and ask ourselves if this is a company that is likely to resonate with a reasonable portion of our investor audience.
Opportunist: What are your competitive advantages?
Mike: Participants can be confident that they will meet genuine investors and see real funding opportunities. As far as I know, there is no real comparable venue to what we do. We may be the only investor conference of its kind that is not mainly supported by vendors and sponsors, and because there is no direct competition, we don’t compete so much against other venues, but are more of a cost-effective surrogate to hiring a placement agent or going on the road to raise capital. We distinguish ourselves in several ways. We are not primarily supported or heavily populated by vendors and service providers. We don’t have panels; we don’t have things that distract from the presenting companies. People who attend are generally the principals of the investment firms that they represent,
Opportunist: How many events do you host annually?
Mike: We moved up from three events a year to five, and we did six this year. We held our first event in San Francisco last June. The proof of the validity of our model is the fact that in the last several years—from the financial crisis in 2008 to the recession and other issues—we haven’t seen any diminution of our investor attendance.
Opportunist: What is your most memorable experience in developing the forums?
Mike: First of all, the journey from when we started in June of 2001 to today has been an amazing one because we have met such incredible entrepreneurs and we have seen such tremendous entrepreneurial spirit and confidence in the investment community. When you’ve been doing something for 10-plus years, things start looking the same, but I remember the first event we did and the last event.
Opportunist: Can you share some highlights of those events.?
Mike: We had a concept to have an investor-only non-sponsored event at the grand ballroom at the Yale Club in New York City. We had confirmed several hundred people and it was such a great success that we decided to do multiple events a year. At our most recent event, on Nov. 30, we registered close to 300 people. It was one of our best-attended event. There was a tremendous amount of interest in the companies that were there. I received many thank-you notes for putting on the event and for all of our assistance. Participating entrepreneurs say they met a wide range of potential investors.
Opportunist: What type of investor typically attends your events?
Mike: We probably draw from the universe of 5,000 or so investment groups—angel investors, venture capitalists, family funds and private equity funds—who regularly attend our events from around the country and are there to see deals rather than to participate as panel judges or speakers.
Our roster of investors is a paid roster. For the most part, they pay from several hundred up to about thousand dollars to be there.
Opportunist: Can you tell us about some of the deals you have helped put together and the companies involved?
Mike: The companies generally consider that information confidential, but I will say that tens of millions of dollars have been invested over the years and there is always a great deal of interest in our featured companies. The majority of the companies that present at our conferences are not raw unfunded start-ups, but companies that have already had a round of angel or venture capital funding—some are pre-revenue and some are post revenue. Most are seeking growth capital to get them to their next level.
Opportunist: How do you spend a typical day?
Mike: Most of my day is involved in determining whether companies are fundable and if they should be part of our program. I spend time working with entrepreneurs, evaluating companies and reviewing executive summaries and business plans.
Opportunist: How do you determine which companies to work with?
Mike: We look for three or four main components, irrespective of the industry, such as: Will the money going into the company be a catalyst for growth? Will it take them to the next level? Will it be bailing out management? We want to see a company that has a clear proprietary advantage in their business method and technology or something that will give them a competitive edge in the marketplace and enable them to compete with companies that have greater resources than they do. Another thing that we look at very carefully is whether there is a business there. One weakness of early-stage companies is their revenue model. How do they place their product? Do they have recurring revenue? Is their business model anchored in reality? Many companies find they can grow for a year or two and then they plateau, so we try to determine if they are in the path of a trend or if they are already in a trend that has come and gone. We also look at pro forma info and we consider if there is an opportunity for expanding revenues and margins. We ask if they can benefit from market segments that are undergoing changes, if there is a prospect for future franchises, if their business model can be replicated for growth, etc. Most importantly, we try look at companies through the same lens as the investors do and ask the same questions investors are going to ask.
Opportunist: How many people do you have on staff?
Mike: We have about a half-dozen people, most of who are involved in the tremendous amount of research that we do in trying to find companies in various business sectors. In other words, we all work 27 hours a day. We are located in Riverdale, New York, just north of Manhattan.
Opportunist: Where do you see the forums headed in the coming years?
Mike: We certainly plan to continue doing our events here in New York and we want to maintain the quality we have achieved, in terms of the investors and the deals that are there. We have had a lot of interest from investors and potential partners to expand to other cities. That’s one of the reasons we held an event in San Francisco—to decide if we should take the model and move it around the country to, say, Chicago, Boston, D.C., Miami, Dallas, etc.
Our next event coming up on March 1, 2012, will be our 38th consecutive event since June 2001. We have never had an empty seat because of the discipline that we apply to the events. We have built a great deal of brand equity and, as a result, we have a very strong following in the investment community today.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area.
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