Where’s the money?
Finance This
by Melissa Metzler

Businesses and their investors both want to make money, so a business should know where it’s going to come from and quickly convey that to potential investors.

Rick Brimacomb read the private placement memorandum issued by Diversity Village Inc. through page 10 before he found any mention of how the company intends to make its money.

“It’s the main question for me and somebody who is looking at plans for a living,” says Brimacomb, partner at Sherpa Partners in Minneapolis.

Brimacomb initially looked at Carl Braun’s business plan about a year ago. The company provides a global network of multicultural resources for consumers and a targeted marketed opportunity for companies in emerging markets, mainly through its web portal DVstreet.com. He says his concern back then about company revenue remains the same now, but he does acknowledge, “They’ve made progress in terms of the number of visitors and services they’re offering.”

As it stands now, Brimacomb says most potential funders won’t give the business a chance until some basics are revised.

“By the time they get to the financials, they’ve probably already made up their mind. It’s like trying to run a hurdle race, you have to get over the first hurdle.”

Brimacomb likes the company’s income statement but recommends a bit more simplistic version to start. He suggests a format similar to a storyboard to help the reader understand the overall picture fast and to focus on the largest issues.

A clear representation of business activities is important, especially for a company like Diversity Village that has many different facets and various elements under development.

“They’ve done a great job of growing organically,” notes Brimacomb, who says he is impressed with the 1.8 million unique visitors to the DVstreet.com Web site. “They’ve identified the need and come a long way on a shoestring of a budget, but how are they going to monetize these eyeballs and translate them into significant revenue?

Projected revenue for 2001 is $2.7 million, a figure that leads Brimacomb to inquire, “What are the drivers making his revenue happen? What is he really doing in advertising to drive what has been average if you look back at the last three quarters? What are the milestones and things happening over the next four quarters?” he asks.

Brimacomb turns his attention to staffing. “How many more bodies is he going to need for that? What are they going to do differently?” He mentions the labor line item and wonders aloud why the figure for 2000 totals only $21,250. “Perhaps some people were working without salaries, but that jumped out.”

Brimacomb also questions sales, saying it’s important to realistically map out how much time can be devoted to selling various components of the plan and to show the details. “Are they leading with a cold call or a letter? Do the sales people have enough time in their day to really allocate to make that happen? The piece to the puzzle is understanding what the strategy is to make that happen.

“We can analzye the numbers, but they’re just a result of what his tactical plan is, and the tactical plan is not covered well enough in his business plan,” says Brimacomb.

Braun’s plan is in fact multi-faceted, but he needs to convey more details about how those could translate into a healthier bottom line, Brimacomb suggests. Revenue can be generated by company subscriptions and contracting out information technology professionals. The sponsorship of career fairs generates money but also serves as promotion for the company. Diversity Village is also about to embark on a franchise strategy in which it hopes to sell multi-ethnic content online to newspapers around the country for their Web sites.

“You come away saying there’s lots of ways where you can make money, but that’s actually a problem with a small company with limited resources and limited people. All kinds of good opportunities don’t necessarily translate into something,” says Brimacomb.

“They have a large number of users without a big advertising budget, but can you really turn that into 7.7 million users by the end of 2002?” Brimacomb asks, referring to the projection. “Those are big numbers.”

Brimacomb wants to know how the company plans to support the projected number of visitors to the site when fixed assets are $400,000. “Maybe they’re outsourcing all that but I couldn’t tell,” he says. “How many people do you have selling advertising, how are you reaching people and the whole distribution side. If it’s not driven by a big marketing budget how will they do that?

“Money is going to salaries, then infrastructure, then technology, and it doesn’t leave a lot in the way of money to drive the number of Web visitors, which drives every single revenue line,” says Brimacomb.

Brimacomb turns to the deal structure. He calls Braun’s goal of raising $2 million with a $100,000 minimum investment “a little too rich for my blood given the kind of business he’s in. The deal is going to probably appeal to angel investors and people that are more retail-focused, so a lower minimum might help him raise his money faster.”

One area that impresses Brimacomb is Braun’s ability to capitalize on a wide range of opportunities for the business.

“Some of the deals he’s cut to move into outstate communities are a real plus, and he’s getting relatively cheap money to hire bodies, they’re getting work done at his company, then he’s outsourcing them to generate some revenue. He’s done a nice job of piecemealing some things together to get what he’s after in a cost-effective way,” and Brimacomb says that accomplishment is important to include in a business plan.

Brimacomb says that since the company is taking on debt, its plan needs to address that. He adds that it needs to outline an alternative plan if it is unable to reach the goals it has set.

 


Carl Braun, Diversity Village Inc.:
651-224-0330; carl@dvstreet.com;
www.dvstreet.com

Rick Brimacomb, Sherpa Partners:
952-942-1074; rick@sherpapartners.com;
www.sherpapartners.com

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