Alternative Models in Traditional Businesses

May28
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buildingsSometimes the foundation of successful entrepreneurial idea is to take a well-known, effective business practice and tweak one step in the process with an interesting innovation. In the arena of real estate development,RealtyShares is doing just that.

Based in San Francisco, RealtyShares provides crowdfunding for real estate development, fostering residential and commercial real estate innovation in how investment capital is raised. The process aims to benefit both investors and real estate developers.  Other crowd funding examples exist such as Lendingclub.com for consumer loans.

The crowd funding platform for RealtyShares provides ease of access that typically isn’t available to private investors who want to invest smaller pools of capital.  RealtyShares allows a minimum investment of $5,000 and investors can choose between a range of properties in both commercial and residential markets, creating an opportunity for investment diversification. The model creates a new way for the individual investor to participate in the real estate market.

For developers, the crowdfunding model takes the development process out of the traditional realm of banks and institutional investors, creating a broader network for raising capital. Ideally, with RealtyShares managing the financial nuts and bolts of the investment process, the opportunity exists for developers to raise capital more quickly and focus on the core work of property development.

Clearly, this model shows signs of success, as a recent article states that the company has raised more than 1.9 million dollars in venture capital to grow its platform. Having just opened the doors in 2013, RealtyShares has already funded projects estimated at more than 70 million dollars in value and, with this latest rounding of funding, will continue to bring investors and developers together for more projects.

If you are looking for innovative and effective methods to bring high growth to your entrepreneurial venture, please contact us today.

How to Avoid Unsuccessful Mergers and Acquisitions

May09
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no_way_signLarge acquisitions can make or break a company. While some companies have achieved strong growth and success from high-profile mergers, many deals result in poor outcomes.
High Risk

According to Harvard Business Review, mergers have a 70 to 90 percent chance of failing. Just because a company is doing very well doesn’t mean that the acquisition will succeed. An article posted byEntrepreneur.com emphasizes that “popularity doesn’t guarantee long-term success.”

Long-Term Strategy

Many organizations fail to address the long-term strategy of an acquisition. According to Forbes, it’s important to not just focus on the initial acquisition but also develop a longer term strategy. Many mergers fail as a result of not “developing other revenue streams fast enough.”

Common Factors behind Failed Acquisitions

Before entering into an acquisition, an organization should consider all of the factors which may cause the deal to fail. A report on mergers and acquisitions by Airmic and Marsh suggests that companies should manage risk “more aggressively.” The most common factors that lead to failed mergers include:

  • Overpaying for an acquisition.
  • Rough or failed target integration.
  • Disputes relating to purchase price.
  • Post Deal completion issues.
  • Uninsured legacy liabilities.
  • Warranty and indemnity claims.

Worst Deal in American Finance

Perhaps the most infamous failed merger was Bank of America and Countrywide in 2008. The failed deal cost Bank of America more than $40 billion. The Wall Street Journal referred to the acquisition as the “worst deal in the history of American finance.”

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Three Signs that An Acquisition Doesn’t Fit

May09
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2890382557_a0fecf0404_oDeveloping a growth strategy can be a little like a trip to the farmer’s market. Everything looks good at first, and it’s hard to see the downside to almost any of the potential opportunities. Acquisitions no doubt seem appetizing; however, unless you want to wind up with a fridge full of rotten purchases, you need to choose well.  Although every company’s growth strategy is different, these three signs will usually point to an acquisition you should avoid.

It Doesn’t Clearly Match the Objective

A good growth strategy gets your company from Point A to Point B with as few interruptions as possible. If you’re unsure if a potential acquisition target will help or hinder that strategy, try to describe in a single sentence how the acquisition will help you get to Point B. The longer it takes you to explain the acquisition’s usefulness, the less likely it is that it will be a worthwhile investment for your company.

You’re Not Playing the Same Game

Although there is a time and a place for diversification, most solid growth strategies these days are focused within the growing company’s market. Competitors, suppliers, and distributors within your market are great choices for acquisitions, because controlling their performance means controlling more aspects of your market. If a target’s connection to your market is tenuous or hard to explain, then it’s unlikely to be a good fit for your growth strategy.

It’s Out of Alignment with Your Portfolio

Again, diversity in acquisitions is not always a bad thing, but a portfolio with too much variety will weaken your company’s growth strategy. This is another good place to apply the one sentence test: if you can’t explain in one sentence how your new acquisition will relate to your portfolio of other acquisitions, then it may be time to reconsider whether it’s a good fit for your company’s growth strategy.

“Innovative” should be a descriptor of the core of your growth strategy, not a euphemism for the high-risk nature of your acquisitions.

Form and Function of Licensing Deals

Dec02
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3318748484_9ff7e56362_oLicensing agreements are ubiquitous; from computer software to Dora the Explorer party favors, many products and services are brought to market through licensing agreements. Put simply, the holder of a patent, trademark, process or other intellectual property (the licensor) allows another (the licensee) use of the IP for commercial gain.

Whether the agreement is arrived at over a few beers at the pub, or is complex enough to involve teams of lawyers and accountants, the basic form remains the same, spelling out the rights and responsibilities of each party to the deal.

Profit is the goal of licensing deal, how that profit is divided is an important part of the agreement. Generally the licensor will receive a minimum payment at a set time as well as royalties based on sales. Royalties typically are in the 6-10% range. Compensation clauses may also require a minimum revenue requirement, which if not met allows the grantor of the license to end the relationship.

The time frame of the agreement is also important. More than just the duration of the contract is involved. The time frame mandates when the licensee must have the product or service on the market. To aid the licensee during the initial phases of development this part of the contract usually allows for a delay in initial payment to the grantor of the license. This part of the agreement also covers renewal and termination conditions.

The operational element of the contract involves quality. It is not uncommon for the grantor to require the licensor to adhere to the parent company’s policies and procedures involving development and marketing of new products. This section also covers distribution territories, non-competing covenants and ownership and control of assets involved in the agreement at its conclusion.

Putting your valuable Intellectual property in the hands of another is a decision that should not be entered into lightly, proprietary information and your good name is on the line.

Smart Strategy Behind Twitter’s Newest Acquisition?

Nov06
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271_1310601711Why would a company want to pay $350 million to acquire a company that has reported less than $10 million in revenue? According to a recent article in the New York Times’ Deal Book, Twitter had some very good reasons for wanting to buy the advertising technology company, MoPub. More importantly, though, is that it provides Twitter with the ability to bring even more to the technology table.  MoPub provides mobile publishers with a hosted ad platform.  The services it offers are a real-time ad exchange and a service that pairs advertisers with app developers who can place ads within programs. This focus is one that can open up a whole new revenue stream for Twitter.

The twitter management team sees the acquisition providing a windfall of future cash flows and is also a defensive move such that Twitter can now manage the MoPub solution solely for its own benefit.

The soon to be public Twitter is hoping the $300+ million price tag was worth the investment.  In time, observers can pass their own judgment on the merits of the deal as Twitter begins to publish its financial results after it goes public.

Successful Acquisitions Are About Relationships, and So Much More

Oct25
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HeadAndTheHeart-byDylanPriest2Business newspapers are part of your daily breakfast routine. Your senior team members research acquisition prospects. You have capital to grow your company. You create The List – emerging technology companies which are likely to be successful acquisition prospects.

You attend tradeshows and invest time in networking with the leaders of companies on The List. Since you are in the high tech industry, you even post your acquisition strategy on your website, like Dell (see their website).

Meanwhile, successful emerging technology companies that fill a niche in your world are thinking strategically and long-term about the sustainability and survival of their product. Along with other options, acquisition is on the table. With available capital and a bit of courting and charm, you could be the one who convinces the right company to allow you to acquire them.

Knocking on the door of the right start-up, your company offers a compatible corporate culture, capitalization, and the chance for the new product to survive and, indeed, thrive. Two other attractive potential acquisition partners offer competitive packages.

But you have spent the most time talking to the CEOs. One in particular demonstrates enthusiasm and compatibility. Your own enthusiasm for acquiring this company grows.

Acquisitive companies have a replicable strategy for future investment and growth. Like Intuit, you may end up acquiring several exciting new companies and that company’s talent. Just this year alone, Intuit has acquired five acquisitions, and a team of talent with each one. It’s latest acquisition, Level Up Analytics, brought with it a “rock star group” of 14 employees.

From strategic and financial reviews of your target company to integration execution and leadership, companies need to develop and sustain relationships cross-company while at the same time delving into the analytic details that translate into a successful acquisition.

While relationship building with potential acquisitions is often the difference between getting the deal done, the less glamorous details such as resolving power struggles, paying too much, poor acquisition integration, and other pitfalls will derail your acquisition.  Acquisitions are costly and failures even costlier, both in terms of dollars and reputation.

Peer-to-Peer lending continues to gain traction

May23
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deadPeer-to-Peer  lending (“P2P”) connects borrowers with non-bank lenders at rates lower than typical bank or credit card rates. In May 2013 Google invested $125 million in Lending Club, a sign that the P2P market is gaining traction.  Banks may become challenged by these P2P networks.  It should be noted that Lending Club’s board includes Mary Meeker formerly of Morgan Stanley, John Mack former CEO of Morgan Stanley and Larry Summers former Treasury Secretary which makes you wonder how long before these platforms begin to look like traditional banks.

We expect the “P2P” market to evolve and expand more substantially to commercial lending.

See a Forbes article here: Article Link

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