Advertisement

Small Business | LEARNING CURVE: Business Lessons From
Southern California Entrepreneurs

When Haste Makes Waste in Hiring

July 29, 1998|KAREN E. KLEIN

Andrew Butte is senior vice president of Amepox Microelectronics Ltd., a high-tech manufacturing company based in Poland that is expanding its U.S. sales. Butte realized the company would have to raise substantial capital to obtain the certifications and technical capacity to do a substantial amount of business in the United States, so he hired an investment broker to help. But Butte soon realized that the broker was costing him more than he was bringing in. He says the experience taught him to do his homework when hiring a consultant. Butte was interviewed by freelance writer Karen E. Klein.

*

There are some unique issues for high-tech companies that keep them on the ground if they don't have financing. So we felt that we needed to find investors and raise up to $5 million if our company was going to have a chance to move into the U.S. market.

I was introduced to an investment banking consultant who seemed fired up about me and my company. He told me what I wanted to hear and I bought right into it, since he was the first person who acted excited and motivated by my project. The way he talked, the guy really sounded like he could finance the whole darn thing himself.

His marketing materials were impressive and he claimed to have raised money for some very big-name clients. I knew I needed help, so I said, "Great! Let's go for it," and agreed to give him a year to find investors for my company.

Unfortunately, I didn't check his references or have his contract reviewed by my attorney. I agreed to pay him $12,000 to "package" my business plan for investors and write a review of my business. The next thing I knew, he had billed me another $4,000 in telephone and travel expenses flying all over the country--business class, which I can't afford myself--and who knew what he was doing?

I never had a meeting with an investor as a result of his efforts, nor did he provide me with the name of any investors who were even interested in seeing my business plan.

Meanwhile, I was generating some leads of my own. I got calls from brokers, agents and potential investors and quickly found a lot of them were trying to sign me to exclusive agreements, figuring I would get financing and they'd get cut in on the action for 5% or 10%.

Some said I had to act fast and send them money right away or the investors would disappear. Others said they had friends who wanted to invest, but I'd have to pay them to make the introductions.

Meanwhile, the original broker I'd contracted with insisted he was going to handle all the investment negotiations for me, regardless of where the lead came from. So here I was, scouring up investors, and he was demanding 10% of all the money raised and 5% of the company.

I saw this relationship was going nowhere except putting us deeper in the hole. My lawyer advised me not to accept any funding until the one-year contract expired or I'd wind up paying a very high commission.

*

It was a bad deal that cost us a year. Now the contract has expired and I'm busy sending out business plans and making plans to make presentations at some venture-capital forums.

Looking back on it, I learned that I should have shopped around before signing a contract with the first guy I talked to. I'm sure there are good investment brokers out there, but I didn't take time to find one.

I also should have insisted on lower-profile references and then called them. I also should have been more patient and tried to find investors myself first--before deciding that I needed outside help. And if I was paying a 10% commission, I should have refused to pay anything upfront. If this guy was really making $500,000 from some other company that raised $5 million, he sure didn't need my $12,000 to live on.

If I was going to hire another broker, I would have the contract looked over by my lawyer before I signed it. And I'd try to get a performance guarantee and some control over the expense account, especially an agreement that any travel would be done just like I do it--coach.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

At A Glance

* Company: Amepox Microelectronics Ltd.

* Owners: Andrew Moscicki

* Nature of Business: Designs develops and manufactures conductive epoxies

* Location: 4235 Donald Douglas Drive, Long Beach

* Year founded: 1988

* Employees: 23

* Annual sales: $1.3 million

Advertisement
Los Angeles Times Articles
|
|
|