Aligning the Interests of Founders and Investors With Best Fit Advisors
One of the most essential and time-consuming aspects of running a start-up or up-and-coming business is fundraising. Securing investments takes an immense amount of effort, but to secure the right investments takes an even greater understanding of strategic business development and the ins and outs of angel investing. To help entrepreneurs navigate this challenging field and understand how to bring their interests in alignment with their investors’ interests – and why that matters – I interviewed the founders of the highly recommended advisory firm Best Fit Advisors, Chris Lowrimore and Kevin Castello.
Dan: So let’s talk about the big idea behind your business, and why it’s relevant to entrepreneurs.
Chris: Kevin and I recognized that there were some weaknesses or holes in early stage funding. Often times what happens is the entrepreneur takes his idea and gets it to a point where he says, “Okay, this is going to work, I just need some capital to make it take off.” So he goes out and raises investment. He takes the money and goes back to building his business. Implicitly, he has agreed to sell his business eventually, but it is way in the back of his mind, something that is “not now, not now, not now.”
In the early stage, increasingly we are finding that, contrary to conventional thought, the investors make the investment, and go back to their lives. They either have a job and they don’t want another job, or they retired from a job and don’t want another job. They want the entrepreneur to go out and build the business to a successful sale. However, nobody is working on making the business a sellable one, and so we realized that was the window of opportunity, because everybody wants the exit, it’s just that nobody is working on it.
Dan: What is it that you provide?
Kevin: We provide a couple of different types of services depending on where the companies are. Our long-term passion is to try and help businesses develop an exit strategy and move intentionally toward it. We work to align founders, early board members, and investors to make sure they are all headed toward the same set of goals. We are able to look at the current exit environment, give them the picture of what their company has to look like in order to meet the goals that we’ve identified together, and with the other people who are involved. We then can work backwards and say what do we need in terms of capital and operations in order to reach your company goals in that time frame? Capital strategy overlays the operational strategy moving toward the exit strategy; and in the broadest sense, that is ultimately what we do.
Chris: A critical piece that’s easy to miss is something that makes our model different than many others. We start with the entrepreneur's goal. Not what our goal is for the business, but what their goal is. And we help them work toward that. We start from a standpoint that says, “What’s your goal for you and your company? Let us help you figure out how to get there.” Not: “We want to sell a 50-million-dollar business, so we want to get you to 50 million dollars so we can sell you.”
Dan: Who would need your services?
Chris: From a strategic development standpoint, conceivably any business or early-stage business that has a set of problems that they don’t have the skills, the people, or the network to solve. Then, more specifically for exit planning, conceivably anybody that wants to leave, or generate an exit, for their company can use our services. It is a slight overgeneralization, but anybody that has equity partners has to exit their business, it’s a rule.
Dan: When can I call you guys, as an entrepreneur?
Chris: The direct path for us is to work with companies that have proven their business model and their customer model. They’ve figured out what their growth cap looks like, and they’ve agreed to an exit, or they want an exit, but they’re not working on the exit. So it’s a matter of building a path from, “okay, so you’re not ready to exit today” to a path to get you there.
Dan: So you’re saying not only do you do ready companies for that transaction, you also strategically align partnerships in certain areas. Once you get them ready, do you also become their cheerleader and bring people to the table for them?
Kevin: That’s right. We’re going to start from the day when we engage working with them to identify who potentially is a strategic acquirer for this. We’re going to go look and see through the channels that we have, are there other people that have an interest in this space for various reasons? And if we look at where they would strategically fit if these companies acquired them, then how do we firstly create the Venn diagram of what buyers want to buy so that what you’re building crosses as many buyers as possible, and secondly, go about strategically building a relationship if we don’t already have one with those companies?
And that’s where we feel like we add the most value. We tell entrepreneurs, you build your business, we’ll build your exit. So we want to be the partner that takes what you’ve built and multiplies it, because we were able to strategically run a buy-process that brought multiple people to the table who were all very interested in what you had done because you built it intentionally.
Dan: We already talked about, well we kind of talked about that, the inspiration for the company, working together.
Chris: Well we like the space. We like the small, early-stage entrepreneurial space.
Kevin: We love entrepreneurs and the fact that they’re willing to take risks. Entrepreneurship is what really drives the engine and job growth in the U.S. So if you want to see the U.S. continue to have great economic success, you have to empower entrepreneurs. And one of the things we recognize is if we can take an entrepreneur, particularly a first time entrepreneur, or an entrepreneur that maybe hasn’t had a good exit yet, and suddenly put 5, 10, 20, 40, 50-million bucks in the bank for them, we’ve created a tremendous amount of freedom for them to go do what they want to do. And that’s what changes the ecosystem, entrepreneurs that have the financial freedom to go do what they’re passionate about.
Chris: And there’s a lot of energy and passion within that population. It’s an exciting process to be a part of.
Dan: What’s the best advice you received when you were starting your business? This could be this business or any other business.
Chris: Don't put yourself in a position where time is your enemy, if you can possibly avoid it, because you can’t control time, right? There’s stuff you can influence, and there’s stuff that you can’t, and if you’ve got enough money to out-wait it, time is not your enemy. That’s fine. That’s a solution. If you don’t have the money, then don’t set up a business where you’re waiting for other people to do something that you can’t influence.
Dan: That makes sense. Kevin, anything you want to add to that?
Kevin: I think mine would be revenue solves more problems than investment. I think there’s this inherent mythos in the startup world that says, “I want to be able to do this, so I need to go get somebody else’s money.” And sometimes that’s the only option, but a lot of times revenue would solve more problems than investment, because investment comes with its own set of problems.
Dan: What advice would you give to an aspiring startup?
Kevin: Be intentional, because if you don’t frame where you’re trying to go in a start-up, people that you bring in with you, the investors that you may bring in, the board members you bring in, the advisors you bring in, they’re going to begin to shape your goals and your visions for you, because you didn’t have one to start with.
Dan: So you’re in the business of helping people. Is there anyone out there that would help you get to your business goals quicker?
Chris: Kevin has met this person and I haven’t, but I think an appropriate answer is author and investment banker named Basil Peters.
Kevin: He would be a good one.
Chris: He wrote a book, just to give you some frame of reference, he wrote a book called Early Exits. He’s been an investor and an entrepreneur and an investment banker, and he’s been a part of, or involved in, many more exits than I have in both from a negotiation standpoint as well as just how you build that. And the thought processes that guide the decisions, he’s well further down that path than I.
Dan: What about anyone here in Austin? Who do you think are five of the top movers and shakers?
Kevin: In Austin, movers and shakers … Paul O’Brien, Rick Timmons … If you talk about CPG, I don’t think you’d get very far in Austin without talking about Clayton Christopher. In crowd funding, I think about Hall Martin, who’s Austin based.
Chris: We hadn’t met them, but I think it’s pretty nifty what the founders of Able are doing. Able Lending Books.
Kevin: Yeah, I think Evan and Will, the founders of Able, are definitely doing some unique things there.
Dan: [Last] question: Do you have somebody that inspires or motivates you?
Kevin: For me, it was entrepreneurs. It was people who are willing to risk everything to pursue their passion. To the point that my wife and I chose to do the same thing.
Dan: Thank you both.
If you would like to learn more about Best Fit Advisors you may find more at bestfitadvisors.com