Happy Holidays from US Capital Partners

Reflecting on US Capital Partners’ stellar performance this year, we are deeply grateful to everyone who has contributed to make this possible. This includes our outstanding lending partners, our dedicated staff, our superb brokers and affiliates, and the many inspiring small businesses we have had the pleasure to advise and finance over the course of the year.

This year, we have had the opportunity to meet incredible small business owners, CEOs, and CFOs who have shown immense courage, creativity, and foresight in the face of challenging economic times. Small businesses are the backbone of the US economy, and we are privileged to have been part of so many success stories.

Winner of our Happy Holidays iPad 2 Gift

We are thankful also for the many new contacts we made this year. As a small token of our appreciation, we have decided to give away a brand new iPad 2 to one of the contacts we made over the last three months. This year’s winner of the iPad 2, we are delighted to announce, is Samantha Foster from Umpqua Bank. Her name was picked out of a hat by Jeffrey Sweeney, CEO at US Capital Partners. Congratulations, Samantha!

We would like to take this opportunity to wish each of you health and happiness this Holiday Season and prosperity in the New Year. We look forward to working with you in 2012.

All the best to you and your family,
The US Capital Partners Team

Reflections on 2011 and Prognosis on 2012

Mergers & Acquisitions As a member of the Association for Corporate Growth (ACG), I was asked last week to give my reflections on 2011 and my prognostications for 2012, to be published in the December issue of Mergers and Acquisitions Journal.

Here is what I submitted:

Jeffery Sweeney, CEO and Managing Director, US Capital Partners, ACG Los Angeles

Our business at US Capital Partners grew about as expected and seems not to be correlated with the general economic trends, at least as reported in the popular media. This is because of our market segment in small-cap and lower middle market debt financing, which is underserved generally. 

Deal activity was stronger than anticipated, considering that borrowing in general was considered weak. We have a specialty in credits for smaller and lower middle market companies. The credit markets are quite fragmented in this space and are not quite as efficient as the middle market, so there are more opportunities for those who know what they are doing here and can reach the borrowers.

I generally expect market conditions to improve. I think we have had most of the bad news this year, dragging the general US and world economy. The election year will bring frantic pump-priming as usual, although it should have been in full swing by now. Additionally, the Euro zone will probably have its finance issues worked out by the end of this year, so that the deck is clear for growth in 2012.

US Capital Partners, LLC is a division of Breakwater Investment Management, LLC. Click here to see what Saif Mansour, founder and Managing Partner of Breakwater Investment Management, submitted.

The Wisest Entrepreneurs Know How to Preserve Equity

Source: Harry Campbell for The New York TimesThe New York Times published an interesting article last week about how some entrepreneurs manage to make million, if not billions, more than others by being careful not to sell too much of their business too soon. The decisions entrepreneurs make early in terms of financing can have large ramifications on how much money they reap later.

Author Steven Davidoff compares the initial public offerings of Internet start-ups such as Groupon, Zynga, Zillow, and Angie’s List. He shows how entrepreneurs who avoid selling their precious equity early, before reaching the I.P.O. milestone, can emerge far better off financially. 

If an entrepreneur obtains venture capital financing early in the business’s life, it is typically at a huge cost. In exchange for this financing, the start-up’s founders will have to sell part of their company, thereby diluting their ownership. Davidoff warns, “The decisions [entrepreneurs] make at the beginning can have wide ramifications, not only for their future success but their profits.”

 

This article in The New York Times illustrates nicely just why US Capital Partners provides added value to small-cap and lower middle-market businesses. At US Capital Partners, LLC., we provide alternative debt financing to just these kinds of companies. In doing so, we help them avoid the expensive mistake of giving away equity too quickly or cheaply. Whether it’s a senior debt leverage or minimally dilutive senior or subordinated growth-capital financing, we can provide the financing a business needs to grow without having to give away too much equity at the early stages. We respect the risk venture capitalists must take and the returns they require from the “winners,” but sometimes there is a debt alternative, even alongside equity, that is less dilutive. Entrepreneurs owe it to themselves to explore all the options before taking excessive or unnecessary dilution in exchange for growth capital.

Letting Go of Wall Street - My Response

Rasanath Das, in blue sweater, in a group meditation at Occupy Wall Street in Zuccotti Park. Photo by Philip Montgomery for The Wall Street Journal.The Wall Street Journal published an article last week entitled “Letting Go of Wall Street.” It features Rasanath Das, a 32-year-old MBA who previously earned a $170,000 salary working long days negotiating deals at Bank of America. Choosing to eschew materialism and devote himself entirely to spirituality, Rasanath Das resigned as an investment banker to lead the life of a full-fledged Hindu monk.

Over the past year, however, Mr. Das has been invited by bankers to speak on the subject of mindfulness and the market. Because of his Cornell University MBA and years in the industry, bankers can relate to Mr. Das, whose talks recount his career trajectory in finance and his eventual choice to leave it.

I decided to post a comment.

My Response to the Article

The “spiritual” aspect of the service Mr. Rasanath Das performs, as it relates to business, may be difficult for most of us to get our heads around. Not that there isn’t value there. I am merely acknowledging the challenge. Perhaps an easier concept to grasp is the important difference between providing “service” to all parties to a transaction in business for remuneration and merely engaging in “self-service,” where the transaction benefits certain parties disproportionately, especially the provider. I believe it is this ethos of self-service that is the root cause of the current problems we have in “big” business, and which is sparking this particular “revolt” that I believe is merely in its nascent stages.

The solution may be to go to a more value-added and transparent service model for larger businesses, much like the model successful small businesses provide.

Small Businesses and Bank Lending

In the old days you could practically pull up to a bank and get financing, like a fast food restaurant. Now you can't and the banks aren't serving you inside either.

According to the Wall Street Journal, loan approval rates at large banks dropped to 9.2% from 9.35% in August as large banks continue to struggle with growing uncertainty in global capital markets.

However, small banks approved 45.1% of loan applications by small firms in September, up from 43.8% in August. Also credit unions and microlenders increased their loans 3.5% in August.

As small businesses continue to struggle with flat sales and small growth rates, business owners are feeling that they can't meet underwriting requirements and as borrowers don't even apply based on pre-conceived notions. The new avenues to fill this need are private finance companies and should be marketed to the small business owner.

Bad news is big banks aren't lending and community bank loans are not optimal, good news is small finance companies and private lenders are. A private investment bank can help renew your small business and set you on a positive business direction for 2012.