RULE # 3 EMBRACE THE NEW FUTURE

There was a time when I thought I knew how the world worked.  Up was up and down was down. Banks issued loans and people borrowed from banks. The highest return one could realize on one's investment would be just enough to beat inflation. Savings was a must, as was thrift, hard work, an occasional vacation, and the mandatory mortgage.

That was twenty years ago, when I was in my mid-thirties and I thought I knew almost everything.

The world of high finance has opened my eyes.  Up is not really up, unless you want it do be up.  Down can be down as long as you don't expect it to be down all the time. Money doesn't have to be saved. It can be created.  You don't need a mortgage on an income producing property. You can use future revenues as collateral. Do you have an interest bearing note? How about taking that interest and calling it something or other and using it for collateral?

So, you need a business loan for $500,000 and you say you don't have any collateral? No problem. Do you have a business plan that proves you will be able to pay the interest? That's all you need.  You ask how you will pay back the principal? What principal? Who said anything about the principal?

So, you are thinking of getting a better rate for those CD's you parked in the bank four years ago at 3.5% per annum? By the way, why are the bank tellers always smiling like they know something you are not supposed to know? It's an empty condescending mandatory smile through the looking glass. You see, they know that we don't know what we don't know, and they also know we will never know. They have been probably sworn to secrecy.


If I told you that you could put your $10K into an account and make 4% per month (guaranteed) what would you say? What if you could put $500M into an account and see it turn into $50B in a year? "Sure!..... Right!" you say.  I don't blame you for your disbelief. It's better not to believe me. Believe me, you'll sleep better at night.

In fact, forget you ever read this blog. Just have breakfast, drive off to work, punch the clock, sit at your desk, make fifty phone calls, shuffle some papers, return to your comfortable home,  go back to sleep and be happy.


Be happy you never read this. It never happened.

Peace.

Rule #2: Create Silver Linings

It never fails. There is bound to be rough weather ahead. The trick is to always keep looking for the faintest of silver linings. This last week another small victory in what seemed like a morass of setbacks. One more CEO Got it! He opted to change his game plan after three months of an ineffective fund raising campaign. He will increase his raise from $7M to $100M, and in the process redefine and re-brand his company from the bottom up.

In the sidelines there is another battle raging. This particular company is in the finance sector and has been trying to raise $10M since January '11. There have been many close calls with high-ranking companies in their business sector. No takers. At the last minute negotiations have gone South. They recently resorted to retaining an investment bank to raise their $10M. The problem here is that the investment banker has the same case of myopia as the company. They can only look for solutions within the box. We are not holding our breath. How many times can you go to the well and come up dry?

The solution from our perspective is bold and gutsy. It involves doing an LBO on one of the major players in their sector. So far, the message has not sunk in. Their CEO is not convinced that they are at the end of the line. He thinks that miraculously someone will pour $10M into a proposition that has been turned down for any number of reasons. All it would take is a $300M - $500M LBO, giving the company extra cash for marketing as it makes the transition from buy-out target to parent company. Not to mention the buzz this will create on the street. Huge PR mileage. Besides if you are in death-throes, it's best to go out with a flourish than a whimper.

Silver linings can be manufactured; they don't have to naturally appear.

Rule #2 of 52: Create Silver Linings.

Rule #1: Use Titanium Steel Balls

If you want the founder of your investee company to love you, get outrageous. Get bold. Get him to think in the biggest possible terms. Do it passionately, but professionally.  Put it all on the line. If you can't do that you are not cut out for this business. Dial phones, or create PowerPoints.

As one investment banker relates his story: "We were introduced to two firms requiring private equity. They chose us because we had raised capital for the legendary Richard Waryn. So, our reputation preceded us.

Both of these firms initially were thinking small; one was aiming for $10M, and the other for $500M.  As you probably already know, it's much more difficult to raise $10M, than it is to raise $100M.  After we were done talking, the $5M turned into a $100 M development-acquisition fund, and the $500M turned into.... well, a $4B expansion fund. Both numbers are justifiable."

Your job as an investment banker is to embolden the founder of the investee company. You are to make him see the Biggest Picture possible. Nothing gets you in a founder's good books faster than wanting to champion his vision, which you helped create.  In order to do that, you must know everything about his company, industry, competition, and most importantly his career path.

It's very much like selling real estate. A home must be priced right, must show well, and be located in the right location for the right buyer...and you had better be in good terms with the home owner. Your investee company must be priced right, show transparency well, and be in the right sector for the right investor. And you must feel like two peas in a pod with its founder.

Now you must prep the property. How to showcase an investee company is the topic of another discussion.

#1 Rule of 52: Have Titanium Steel Balls (or Ovaries, as the case may be). You'll need them to convert the founder to think Big. Internalize this.