Friday, December 23, 2011

Hagar's Prayer

(This sermon refers to several passages in Genesis, which are quoted at the bottom of this posting, for your reference)

The story of Hagar's expulsion by Abraham and Sarah is, to me, one of the most poignant in the Bible, and for additional, literary and cultural reasons, I find it fascinating, as well as touching.  A vulnerable woman,  foreign, enslaved, a mother - is rejected – ejected by people she knew from the community that protected her from ravages of the desert and the depredations of travelers from whom a single woman or even a single man, had little defense. They sent out to a death sentence, or possibly worse, in that unforgiving land with one loaf of bread and one skin of water.  Soon parched and starving, her choices more and more constrained, she resigns herself to inevitability and sets her son under the limited shade of a bush and removes herself some distance with the only hope left to her – to not live long enough to see her only child die.



Some of you, I know, have had to endure such heart wrenching experiences, yourselves.  Some of you have had to whisper that most fervent of prayers, “Please don’t let me outlive my child.”  A parent’s worst nightmare.  Some of you have been rejected – ejected by people you had known, loved, and trusted – a loved one like parent, spouse, or adult child who has cast you off.  Some of you have been abused by others in one form or another when you felt most vulnerable, and you took it when your options seemed severely limited.  Many of you have lost jobs, health, friendships and felt alone, abandoned, afraid. What happened to you?  What in Hagar’s terrible ordeal speaks to you?  



In the first version of the story, Sarah blames Hagar’s attitude for deserving subsequent harsh treatment.  Did you blame yourself, too?  Did you leave or consider leaving, only to return for more of the same treatment?  Why?  



In both versions, an angel appears and comforts Hagar by telling her of an ennobling future – that she will be blessed by a son, but he will be cursed as a warmonger doomed to fight his brothers.  In the first version, she returns to Sarah, for presumably more harsh treatment as she bears her son, and in the second version, her son and she never return, but strike out on their own.  She lives long enough to find him a wife, and in the final snippet, he lives long enough to father 12 sons who become the chiefs of the their own tribes.  In any of your travails, when have you encountered a personal angel – perhaps a mentor or friend or even a fictional character who said just what you needed to hear at a moment of your deepest despair? Alternatively, when have you been that angel to someone else?   I had an experience that combines both.  I had been fired from one job I hated and then laid off from a dot com and thought that maybe I’d be better off working for myself.   A man from church hired me for a writing/research project that helped get me started, for which I was very grateful.  Several years later, when I worked for another dot com, I was able to hire him for an IT project.  His wife told me years after that, that he needed that job at that time, as much as I had needed the one he gave me, a few years earlier.   I love the synergy that each of us was able to help the other at a time of need, without necessarily knowing how important it was at the time.  I’m willing to bet that you have been that angel for others, and that others have rescued you a time or two, too.  Please think about that, and be grateful for both. 



II          I’d like to talk about two other aspects of this story that are not as personally touching but that have long term cultural importance.   The first is literary.   The Bible is unique among discovered or retained ancient literature in the frequency of stories involving marginalized populations, like slaves, women, foreigners, and children who are named, pivotal characters.  If you think about it, most ancient literature is about gods and heroes, isn’t it?  Or kings and queens.  I don’t recall that Homer captured any touching moments with the slaves of Helen of Troy or Penelope of Ithaka, do you?  And that is a fair comparison, because those Greek stories were probably gathered together in written form near the time the Jewish tales were gathered into the books of Genesis, Exodus, and Numbers.  But the Bible tells stories not only of Hagar the slave, but Ruth, the Moabite daughter-in-law who loves her Jewish mother-in-law so much that after their husbands die, she travels with her out of her own country and back to Israel and works to support her.   So even if these stories don’t touch you personally, you can appreciate them as examples of a culturally distinctive literature. 



This story is significant theologically, too.  Although there are earlier stories in which God talks to Adam and Eve and Noah, this is the first in which an angel speaks to a human.  Not only is this inaugural conversation with a woman, but to a foreigner- not a Jew, and a slave.  The angel of God recognizes her and calls her by name!  So this is a powerful episode in the evolving sense that Judaism was moving from a  localized tribal religion, as in my clan has its family gods and your clan worships different gods, to a definite monotheism.  This angel or this god recognizes outsiders like Hagar, and she acknowledges him, even naming him, I see the God Who Sees me.  Finally, you probable recognized the phrasing with which the angel tells her she is pregnant as the same language the gospels of Matthew and Luke used for the annunciation of Jesus’ imminent birth.   The birth of Christ is foreshadowed by the son of a slave.     



It is for such reasons that this story, like that of the exodus from Egypt, were two that particularly resonated with Jewish and Christian slave populations throughout history.  The god of the slave holders was also the god of the enslaved, and miracles were available to them, too. 



III        The final point about this story that I’d like you to know is how this story may contribute to some of the antipathy between the Jews and the Arabs today.  You noticed of course that Ishmael’s destiny is described rather unattractively in the first version as “A wild-ass of a man he will be, against every man, and every man against him, setting himself to defy all his brothers.”  The final anecdote simply says, “He set himself to defy his brothers.”  Well, why would that be the end of the story, particularly for a man whose name means, “God Hears?”  It is because of his sons.  Remember he bears 12 sons who become 12 chieftans.  Well, where do Ishmael’s sons live?   You may not be up on your ancient geography to know Havilah and Shur, but you know what is east of Egypt:  Arabia, on the way to Assyria, which was the empire along the Tigris and Euphrates Rivers of contemporary Iraq. Havilah is associated, traditionally, with the area of southern Arabia, around Yemen.   So this Bible story depicts the progenitor of the 12 tribes of Arabia as a “wild-ass of a man, who sets himself to defy his brothers.”  Who is the only brother we know?  Isaac, whose son, Jacob fathers the 12 tribes of Israel.  Now Biblical literalists tend to interpret this as meaning that the Bible foresaw inevitable conflicts between the Israelites and the Ishmaelites, or Arabs, and it is Ishmael’s fault.  Others believe that such Bible stories were written after such conflicts existed, as a way of explaining and often justifying old feuds and hatreds.  There are many such stories in the Bible that defile the forefather of enemy tribes and nations in this way.  My favorite, because it is so awful, explains that the Israelites hate the Moabites and the Ammonites because their forefather was Lot, who had incest with his daughters, after they fled from Sodom and Gomorrah, and the ensuing babies grew up to found Moab and Ammon. 



Interestingly, though, the Muslim Arabs themselves have an entirely different version of this whole story, and it intersects at some points with ancient Jewish oral traditions, outside the Bible.  One element is that Hagar was not a slave.  She was an Egyptian princess whom Abraham married, along with Sarah, at a time and culture in which polygamy was not only legal but encouraged.  Her son, Ishmael, is listed 12 times in the Koran, as one of the prophets.  In the Muslim version, Abraham doesn’t abandon them to the desert but takes them through the desert.  Ishmael does cry from thirst and Hagar runs seven times between two hills to find water.  God hears the cries and creates a miraculous well.  Today, when Muslims go on their hajj, they recreate this story by running between two hills in Mecca seven times and then drinking water.  They also circle the Kaaba.  Tradition teaches that Adam built it, but Abraham and Ishmael rebuilt it on its old foundations.  Another difference between Jewish and Muslim stories is the sacrifice of Isaac in the Bible.  In the Koran, Abraham dreams that he was to sacrifice his son.  The boy is not named, but Muslim tradition holds that it was Ishmael, not Isaac.   This tradition is reinforced by the sacrifice of a lamb during the Hajj and elsewhere in the world.  Other oral traditions, in both Judaism and Islam tell of later interactions between Abraham and Ishmael, for example, how Abraham remained involved enough in Ishmael’s life to encourage him to divorce a first wife and keep a second one, and tell how Abraham gets together with both son and six more that he has by a third wife, after Sarah died.  



Since Ishmael is the forefather of Arabs, various tribes trace their lineage back to his sons and to himself, Mohammed, himself, included.  The name of Mohammed’s wife is the same as one of the wives of Ishmael, making them a prophetic couple foretold.





I hope this isn’t more than you ever wanted to know about Hagar.  You can tell that I find it a rich and provocative story for personal, literary, and intercultural reasons.  I hope that next time you hear her name, you will be less inclined to think of Hagar the Horrible cartoon figure and think of Hagar the tragic or Hagar the first woman in the Bible to engage an angel in dialogue, or Hagar, whose story shows the evolution of Judaism, from tribal religion to monotheism, or Hagar, the Matriarch of the Arab people. 
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The following Bible passages are from the Jerusalem Bible English translation
Genesis 16
Abram’s wife Sarai had borne him no child, but she had an Egyptian slave named Hagar.  So Sairai said to Abram, “Listen now!  Since Yahweh has kept me from having children, go to my slave-girl.  Perhaps I shall get children through her.  Abram agreed to what Sarai had said.  Thus, after Abram had lived in the land of Canaan for ten years, Sari took Hagar, her Egyptian slave-girl and gave her to Abram as his wife.  He went to Hagar and she conceived.  And once she knew she had conceived, her mistress counted for nothing in her eyes.  Then Sarai said to Abram,”May this insult to me come home to you!  It was I who put my slave-girl into your arms, but now she knows that she has conceived, I count for nothing in her eyes.  Let Yahweh judge between me and you.”  Very well, Abram said to Sarai, “Your slave-girl is at your disposal.  Treat her as you think fit.”  Sarai accordingly treated her so badly that she ran away from her.
The angel of Yahweh met her near a spring in the wilderness, the spring that is on the road to Shur.  He said, “Hagar, slave-girl of Sarai, where have you come from and where are you going?”  “I am running away from my mistress, Sarai.” She replied.  The angel of Yahweh said to her, “Go back to your mistress and submit to her.”  The angel of Yahweh said, “I will make your descendants too numerous to be counted.”  “Then the angel of Yaheweh said to her, “Now you have conceived and you will bear a son, and you shall name him Ishmael, for Yahweh has heard your cries of distress.  A wild-ass of a man he will be, against every man, and every man against him, setting himself to defy all his brothers.” 
Hagar gave a name to Yahewh who had spoken to her:  “You are El Roi”, for she said, “Surely this is a place where I, in my turn, have seen the one who sees me?”  “This is why this well is called the well of Lahai roi, it is between Kadesh and Bered.    Hagar bore Abram a son, and Abram gave to the son that Hagar bore the name Ishmael.  Abram was 86 (years old) when Hagar bore him Ishmael.
 Genesis 21: 9
 Now Sarah watched the son that Hagar the Egyptian had borne to Abraham, playing with her son, Isaac.  “Drive away that slave-girl and her son,” she said to Abraham; “this slave-girl’s son is not to share the inheritance with my son, Isaac.”  This greatly distressed Abraham because of his son, but God said to him, ”Do not distress yourself on account of the boy and your slave-girl.  Grant Sarah all she asks of you, for it is through Isaac that your name will be carried on.  But the slave-girl’s son I will also make into a nation, for he is your child, too.”  Rising early next morning, Abraham took some bread and a skin of water, and, giving them to Hagar, he put the child on her shoulder and set her away.  She wandered off into the wilderness of Beersheba.  When the skin of water was finished, she abandoned the child under a bush.  Then she went and sat down at a distance, about a bowshot away, saying to herself, “ I cannot see the child die.”  So she sat at a distance; and the child wailed and wept. 
But God heard the boy wailing, and the angel of God called to Hagar from heaven.  “What is wrong, Hagar?” He asked.  “Do not be afraid, for God has heard the boy’s cry where he lies.  “Come, pick up the boy and hold him safe, for I will make him into a great nation.”  Then God opened Hagar’s eyes and she saw a well, so she went and filled the skin with water and gave the boy a drink.    God was with the boy.  He grew up and made his home in the wilderness, and he became a bowman.  He made his home in the wilderness of Paran, and his mother chose him a wife from the land of Egypt. 
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Genesis 25
Abraham gave all his possessions to Isaac.  To the sons of his concubines Abraham gave presents, and during his lifetime he sent them away from his son Isaac, eastwards, to the east country.  … Abraham breathed his last, dying at a ripe old age, an old man who had lived his full span of years, and he was gathered to his people.  His sons Isaac and Ishmael buried him in the cave of Machpelah. …
 These are the descendants of Ismael, the son of Abraham by Hagar, Sarah’s Egyptian maidservant.  Nebaioth, Kedar, Adbeel, Mibsam, Mishma, Dumah, Massa, Hadad, Tema, Jetur, NNaphish, and ledemah.  … Twelve chiefs of as many tribes.  The number of years Ishmael lived was 137.  Then he breathed his last, died, and was gathered to his people.  He lived in the territory stretching from Havilah to Shur, which is to the east of Egypt, on the way to Assyria.  He set himself to defy his brothers.  
  


Leviticus: The Religious Liberal's Very Best Friend

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Who Wouldn’t Want a Licensed Broker-dealer?©

Unlicensed investment brokers across the country are scurrying to Kaplan review courses and Sylvan Learning Centers in order to pass required license exams and become registered with the FINRA.  Those who, for years, have said that they didn’t need the license in order to get clients, fund deals, and collect commissions have concluded that now, they do. Why?  Certainly, in the wake of financial scandals and investor mistrust, both public and private companies are undergoing more rigorous scrutiny.

In addition, both investors and entrepreneurs have become much more savvy about the protection that policing organizations like the FINRA (www.finra.org) and SEC (www.sec.gov  can afford them, and those organizations are vigorously pursuing complaints, perhaps in part to rebuild public trust.  The resulting penalties for offending investment bankers include fines, jail time, bans from working with any other broker-dealers, and public disclosure of their actions and sanctions.  (See www.finra.org and www.sec.gov for details of recent judgments). 

What is the value of a license?  Perhaps a better question is, what are the dangers for any or all parties (the investor, entrepreneur, and investment banker) if the latter is not licensed? 

1)            Right of rescission:  Melinda LeGaye, President of MGL Consulting Corporation in The Woodlands, TX, provides FINRA required compliance auditing services for broker-dealers.  She recommends that "entrepreneurs seeking equity capital in the form of a private placement “…”utilize the services of a broker-dealer firm that is registered with the FINRA, the SEC, and with the states where the offers will be made.  Otherwise," she warns, "There are potential rescission issues associated with sales by non-registered dealers.”  In other words, a deal can be revoked and funds returned, even after it has closed.

2)            No back end fees:  According to the SEC and FINRA, unlicensed fundraisers (who therefore have not agreed to be bound by the code of ethical conduct) are not allowed to be paid a percentage of funds raised from accredited investors.  They can be paid a retainer or a consulting fee, but not a “back end fee” or commission.  In the past, many entrepreneurs did not know this, so they paid the successful, unlicensed fundraisers anyway, pleased to have the capital.  Now, however, the word is out.  An unlicensed money raiser could walk away from a closing with no commission at all.     

3)            Deal transparency:  Licensed broker-dealers and their representatives swear to interact with clients according to a code of ethics outlined for the public on www.finra.org.  These rules pertain to both internal and external conduct.  For example, the list addresses what can/cannot be promised verbally or in writing, reasonable fees, what services can and cannot be rendered, and full disclosure of deal terms, personal involvement, and timely introduction to “promised” investors.  At the office, all records must be accessible and audited, and even a complaint book must be kept available for any clients who request it.  Unlicensed money raisers may determine their own higher or lower standards of ethics.  Warning:  If a fundraiser sounds too good to be true, s/he probably is (unlicensed)!

4)            Public records: The public can check for free the professional background of any FINRA licensed representatives or broker-dealers (www.finrabrokercheck.com).  This resource includes such information as prior employers, number of licenses, and any sanctions or complaints.  All entrepreneurs and investors should check out all investment bankers they consider.  If the names are not on “Broker Check,” the people are not licensed.  Why hire them?

5)            Recourse:  If disgruntled investors or entrepreneurs seek recourse against an unlicensed investment banker, they have access to the court system of course, but that process is often expensive and time consuming.  Sometimes the legal fees alone are larger than the amount disputed.  In increasing numbers over the last decade, clients (and investors) are turning to FINRA arbitration.  (See www.finra.com for statistics and information.)  Clients have access to 1-3 arbitrators in a binding process that is very reasonably priced from the very agency authorized to punish, ban, and publicize the offenses of the broker-dealer – a powerful ally.           

How much does it cost to become a licensed broker or registered representative? Are financial considerations alone prohibitive enough to discourage ethical fundraisers from becoming FINRA licensed?  Consider the following prices to become a registered representative in Texas:  $235: each licensing exam (#63 – state, #7 or 79 – national, #24 -supervisory); $150 – 500: each study guide or class; $200 - 400: to register with the state: annual continued education courses ($100 – 500), and $20 to be fingerprinted.  Cost: about $800- 4000.00.  Why wouldn’t someone do this to protect himself, his clients, and the deal! 

Just as in the real estate profession, a newly registered representative cannot work alone, but must affiliate with a supervising broker. This is a firm which assumes liability for supervision of the representatives by experienced professionals with more licenses (at least a Series 24).  This supervision includes the representative’s correspondence, accounts, sales, contracts, and fees.

A broker-dealer firm must conform to additional requirements designed to protect clients which cost money that unlicensed fund-raisers do not incur.  For example, registered broker-dealers must have independent audits ($5,000+), an internal or external compliance officer , an internal or external Financial Operations officer ($10,000 part time +), FINRA fees ($3-5,000), fidelity bond ($250+), SIPC fees ($1000), and a net capital requirement ( $5,000 - $250,000).  Additional fees for firms that want to protect their clients and investors include those for e-mail supervision and background checks of employees, potential investors, and entrepreneurs.  The range of fees reflects the number and types of investment banking services and transactions.  To open a minimal service, two person broker-dealer requires an initial cost of $60,000 the first year (not including normal office expenses) and three months to be approved by FINRA.

 These costs and delays might provide a disincentive for many unlicensed people to embark on this path mid-career.  But as an investor or an entrepreneur, why on earth wouldn’t you find one who has already done so?  Why wouldn’t you want deal transparency, public records, arbitration services, professional exams, and a published code of ethics? 


Ready to Raise Private Equity?

Ready to Raise Private Equity?

Over the past several years, we have watched hundreds of companies solicit angel and institutional financing in cities throughout the U.S.  We have helped a hundred of them present their value proposition to the marketplace.  During that time, the market responsiveness to those companies has shifted.  We have seen too many companies spend valuable resources in search of interested investors, only to discover, many months and dollars later, that the current market didn’t see their value proposition as clearly as they did.  Some of these companies deserved serious market consideration, while others approached funding sources with unproven technologies, idealistic management teams, or an immediate financial need that dissuaded financiers.  Still others had small, profitable ventures that might have better invested their time in sales development than in investor marketing, including the service providers they paid along the way.

We recommend that companies undergo a four-part self-assessment process before spending money in search of private equity.  (They can do so without spending a dime, or they can hire professionals to help them.)  The companies most realistic and prepared for financing options know the answers to the following four questions.  Do you?   

How do financiers see our company?

Financiers of any kind, whether banks, angels, institutional investors or factoring firms, will expect certain documentation of “corporate readiness.”  These items are included in a rather daunting list of about 50 due diligence requirements.  Assembling and organizing this information is useful for any management team, whether or not it is seeking funding. 

Observations: We have been surprised to encounter executives who could not state their profit margin or what their patent covered.  Such companies are not ready to approach finance sources.  We’ve also heard conflicting answers by various members of management teams.  Not good.  Many companies rely on the “atta boy” cheers of paid service providers who write and rewrite business plans, patent applications, and SEC documents, but are, themselves, not funding sources.  

Whom does the market see as our competitors?

A company should NEVER say that it has no competitors.  That sounds naïve.  What companies and products does the market perceive to be competitive?  While customers care about product or service superiority, financiers care about competitive profitability.  To attract financing, a company should know whether it is able to deliver its value cheaper, faster, better, and more profitably than the other guys, and how it plans to preserve its competitive edge or be attractive enough to be acquired.     

Observations: Particularly, but not only, in technical companies, we have seen entrepreneurs spend personal and investors’ funds to develop fine products before asking relevant commercial questions, like “will people buy it?” and “at what price?” and “what is our profit/loss above/below certain prices.”  Business school case studies are littered with examples of superior products that did not sell because they were too expensive or ahead of their time and not marketed well enough to educate and then attract the customer base they needed to stay in business.   

What is the cost of outside funding?

Financing options have different costs, based on risk to the financier.  Debt based loans or investments are cheaper because of they are based on identified collateral or receivables.   Equity based investment is more expensive because it relies on a company’s unproven potential.  Investors who lost money in far more established companies are shying away from start-ups now, and are taking more time to scrutinize due diligence.  This means that the better organized a company’s records are, the faster it can get a “yea” or a “nay,” and for any company, time saved is money earned if well spent elsewhere.   Disorganized companies, or ones that choose to obfuscate unattractive financials or management history will definitely prolong the funding process and may doom it. 

Observations:  (1) It is a buyer’s not a seller’s market.  We have seen companies turn down investors who asked for a larger piece of the company than the principals were willing to give or turned down a price lower than they were willing to accept.  (2) Some management teams overvalue their company due to sentimental attachment.  Others base valuation formulas on future earnings estimates that cynical buyers don’t believe, rather than current revenues and assets that are easier to defend.  Step into the buyers’ shoes before engaging in negotiations.  What’s obvious in the spread sheets and resumes and background checks? (3) Companies should carefully read the financing terms.  We’ve seen companies brag about a term sheet until someone in their firm read it carefully and saw that it is contingent on achieving certain milestones that the company was hoping an investor would help pay them to achieve or sometimes a surreptitious service provider contract, masked as an investor.  If one manager tends to be optimistic, make sure that others more cynical read the terms before signing.  Taking too little to accomplish a required goal, while giving up a hefty percentage of the company if that goal is unmet is often shorthand for selling it at a deep discount.      

What do investors want?

Investors are not philanthropists. They are interested in profit, sometimes in particular industries and sometimes in diversification.  Since capital is scarcer than companies seeking it, it is the job of any company seeking funding to target the appropriate funding source and address this understandable self-interest.  While the questions may vary, the gist is, “why should I invest my money with you instead of with the other companies clamoring for my attention?  About twenty frequently asked questions (FAQs) should be anticipated by companies, and answered well.   For example, “Who owns the intellectual property?“ “What are the terms for first and second round investors?”  “What’s your burn rate?”  

Observations: We have seen companies spend all of their initial investment on product development and wait for second round funding to assess the commercial prospects.  This requires several “leaps of faith” by investors and bankers.  Unless the company has a management with a track record of start-up brilliance in similar endeavors, this is often a death knell.

Conclusion:

Seeking equity is not for the faint-hearted company.  It requires more time and more money than companies often expect, often paid to service providers who earn money whether or not the company gets the funding it seeks.  Knowing the answers to the four questions above will enable management to differentiate between realistic funding sources or funding finders and time wasters, and to allocate their own time to customer development, cost cutting, or financier wooing, as appropriate.        

Entrepreneurial Goofball Statements

Entrepreneurial “Darwin Award”© Nominees

Laura Emerson


 If there isn’t a “Darwin Award”© for entrepreneurs, there should be, for people who would benefit business most by leaving it.  I’d like to nominate the speakers of the following, eye-popping quotes in response to logical, due diligence questions. The responses may elicit “you must be pulling my leg” reactions; however, they are all true or abbreviated responses by entrepreneurs or their investment bankers. A single hour’s research per company uncovered most of the underlying issues.  Following the quotes are several free and useful research websites and search tools by which investors can research entrepreneurs and by which entrepreneurs can research board members and service providers.   If you tend to be trusting by nature, verify, too.

 ·                     “Litigation is just a cost of doing business,” said one CEO regarding more than five current suits, judgments and settlements I found against companies in which he was listed as a director or president, including, sadly, a “charity” of his not listed with the IRS.

 ·                     “He wasn’t a very involved director,” said a company president, regarding one of his directors, who was indicted for bribery and fraud as a director of another company. 

 ·                     “I don’t think the IRS tax lien will really discourage investors.  People will either love or not love our business.”

·                     “We don’t think of it as a conflict of interest.  We think it is efficient that our major suppliers are also owned by members of our management team and Board of Directors.”

 ·                     “No; we don’t want an escrow account with an independent bank and a second signature before releasing investors’ money. Yes, we are raising money to start a bank.”

·                     “Those two corporate bankruptcies were not my fault,” said an entrepreneur seeking investment by showcasing his financial management skills.  Unfortunately, the state and county also list five recent personal liens and judgments against him by businesses and taxing authorities. 

 ·                     “I learned my lesson,” shared a serial entrepreneur, questioned about evidence that he had served time as a white collar felon for duping investors.  “Different investors.”

 ·                     “Yes, there is another company with the same name that owns the IP we are describing in our documents as our company.  That is because we want to raise money to buy them.”

 ·                     “I know that the money we want to raise now is not enough to fund the business model I have described.  Our plan is to raise enough money from individuals to buy a public shell or go public, and then raise money from stock purchases to start the real business.”

 ·                     “Oh, I didn’t realize that another company’s website says to report anyone else trying to represent the product our client wants to raise money for, but he plans to sell it in Mexico, not here.”

 ·                     “That journalist hates me,” admits a president regarding an article in his hometown business paper that cited lawyers and investors suing him for a prior business deal very similar to one that company press releases were currently touting.

 ·                     “Yeah, we’re updating those filings now,” affirmed a CEO of a pink sheet company in 2006.  (The most recent filings were from 2000).  The company specializes in managing other companies.  

 ·                     “I haven’t done anything in real estate development before, but I ran a very successful dry-cleaning business,” said a young and enthusiastic entrepreneur. 

·                     “I don’t know why they are suing me.  It was my dad’s store,” said a man charged with 65 counts of petty theft and 27 counts of forgery, hoping to find investors for a new business venture.


These quotes prompt two questions:

(1)   How many knuckleheads do these entrepreneurs and investment bankers think are out there?

(2)   Are people really willing to write a five or six or seven digit check for a well told tale without a bit of research?  

Each of these responses resulted from questions after research that took one to three hours per company, from publicly accessible documents, reading the Private Placement Memorandum (PPM), or just attending the investor presentation.

Most entrepreneurs like an audience, and if you ask the right questions, you’ll get an illuminating earful. Then hide your wallet until you hit the Internet.

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Below are extremely useful, free websites and Internet search tools that potential investors, investment bankers, and even employees can use to review a business prospect. 

Useful Search tools:

Internet searches are harder for common personal names, company names with generic phrases like “Beautiful Flowers” and initials, like “ABC Corp.”  Researchers would do well to try several combinations, such as name and city or name and industry.

Useful websites:

*          www.sec.gov              This site is for public companies.  One can search for individuals who might be major stockholders or prior directors or managers, or if a company has been sanctioned, has changed names several times, or is a wholly owned subsidiary. 

*          www.irs.gov              

            www.charitynavigator.org                  Anyone who donates money to a charity or religious organization should see if it is listed with the IRS as a 501C3, which allows for a tax credit.  If the charity is not listed, why not?          

*          www.finra.com           This website (See Broker Check section) lists every currently licensed individual and broker-dealer in a very easy, searchable system, which includes any disciplinary disclosures and prior employers, too.  It also lists people who left the industry as long as ten years ago, perhaps under a cloud of sanctions, which are also listed.  The website lists the code of ethics and rules regarding most types of investment sales by which all registered people are bound.   People not listed here are not registered but call themselves financial service providers.  

All three of the above websites have a “wall of shame” section, too.

*          www.bbb.com                        Visitors can search for companies and charities affiliated with the BBB and for company complaints filed with the BBB, by city.  This site is less useful for financial industry firms and more useful for companies that sell some kind of inventory or other service.

*          www.yahoo.com/finance        A number of websites, such as Edgar and Hoovers, require log-in and membership to access information more easily available, for free, through Yahoo.  A visitor can search for press releases, and access public filings and stock price histories.  Anyone who has served as an officer of a public company should be searchable.

*          www.google.com        The most highly used search engine is very user friendly. 

Searches reveal information about individuals as varied as book reviews they have written, blogs they have visited and political candidates and charities they have supported. 

The websites of counties and states across the country vary widely in their web-readiness.  Some have committed years and millions of dollars to filing documents electronically for the convenient access of the public.  Texas and Alaska have very open records policies.  California has stricter privacy policies.

·                     http://www.cclerk.hctx.net/cccourt.htm  On the Harris County Civil Court website, visitors can search for incorporated and DBA companies, for civil suit dockets according to plaintiff and defendant (and read the outcome) by company and individual names.   

·                     www.hcad.org   On the Harris County Appraisal District website, visitors can search for property records, including ownership and tax payments.  An investor might want to assess whether the entrepreneur owns property or is a flight risk if a deal goes sour.  Similarly, an entrepreneur might want to determine if a potential investor owns or rents that mobile home or a mansion.  In both cases, the inquirer can see if tax payments are current.

·                     http://www.nasaa.org/QuickLinks/ContactYourRegulator.cfm       All states have a secretary of state website.  Although the customer friendliness varies broadly, these are good sources for checking out any licensed professional, many incorporated companies, and other useful information about white collar crime prevention.

·                     www.bizjournals.com             This website enables visitors to search through city business journals from Albany to Wichita, which may have articles about an entrepreneur or investor active in that city.         






The Three “Be’s” for Inventors and Entrepreneurs Seeking Investors

“People don’t hand over money for good ideas.  They invest in businesses that can make them more money than other uses of those funds.”
“If you don’t look serious about your business, why should someone else be serious about his/her money?”

Bryan Emerson  (Managing Principal of Starlight Investments) offers the following three pieces of advice for entrepreneurs hoping to commercialize their inventions: Be prepared, be patient, and be flexible.

Be Prepared (be Realistic)
Although family and friends may support inventors because they trust and respect them, “that is too much to expect from anyone else.”   Serious consideration by other investors requires four items:
1)            a working, tested prototype (preferably with paying customers),
2)            a succinct executive summary (2-4 pages),
3)            a full business plan which demonstrates knowledge of the costs, profit margins, sales pipeline, competition,
4)            an investment-oriented PowerPoint presentation.  

Technical people who do not regard themselves as skillful business writers familiar with what the investment community wants to hear should hire someone to convey the commercial logic of the invention.  Emerson observed that a common misconception by inventors is that investors are interested in a product per se.  This is not true. Investors are interested in scalable, profitable or potentially profitable companies, preferably with multiple revenue streams that aren’t all vulnerable to the same market fluctuations.  Emerson recommends that entrepreneurs find a mentor who has successfully commercialized an invention, preferably in their niche.  Why make costly mistakes when a mentor can warn you in advance?

Be Patient and Proactive
“Launching a business, seeking investors, and finding customers all take longer and cost more than one might expect.  Take a long term view and use that time well,” says Emerson.  Work at getting visibility in the finance and investment community.  Although investors may be cautious now, they may be more interested in a year, especially if they have gotten to know you and your business in the interim.  Also, set technical and commercial milestones and achieve them.  Build a prototype, test it, write expert commentaries, etc.  Follow up with people you have met to let them know what you have accomplished since last time you spoke.  Some people may suggest goals because they are serious about your business enhancements; others may set goals to get rid of you.  Learn to tell the difference by ascertaining whether they have really invested in this space or are just talkers.  

Be Flexible about financing
Ask a financial professional familiar with start-ups about all financing opportunities.  Should you locate in an adjacent county since government grants and loans vary by district? How much money do you seek to raise?  Consider angel groups for less than $1 million and investment bankers for more.  Should you consider receivables financing?  Companies with assets and cash flow have more financing options than those without, including both debt and equity-based loans and loans based on factoring inventory or receivables.  Vendors, customers, and partners are also funding source options.
Inventors and other entrepreneurs have many resources available to them, including time, documents, public information and professionals.  Explore them and use the ones that make sense to ensure that your worthy invention becomes a viable business rather than a tax write off.