Strictly Business

Entrepreneurs: Finding the Halloran Brothers is Not a Financing Strategy

by Darrell Williams

I like Halle Berry.

Correction. I don’t know if I actually like Ms. Berry because I don’t know her. To be honest and accurate, I like looking at Halle Berry. Because of this pathetically superficial perspective, I’m down for watching any movie she is in (ok, maybe not “Monster’s Ball”). In fact, the less intellectually or emotionally challenging the movie, the more I like it. Less distraction. Thus, I really like the movie “Strictly Business” where the lovely Natalie (Ms. Berry) is the object of desire for Waymon Tinsdale (played by Joseph C. Phillips - OOOOO SIX!!!), himself a not-black-enough real estate executive trying to bag the big deal that vaults him into partnership level at his firm. Of course, the movie ends well as Brother Tinsdale gets the deal, gets his blackness, gets the girl and gets the partnership, all with the help of Bobby (Tommy Davidson), a mailroom clerk who doubles as the muse of racial correctness.

I know, I know. What does any of this have to do with entrepreneurship and finance? Nothing really. Neither the plot nor outcome of Strictly Business has anything to do with true entrepreneurial finance. Unfortunately, however, the movie does perpetuate a myth that I see all too often among entrepreneurs: The myth that there is an investor or buyer that the entrepreneur has never met, interested in committing capital to a business that the investor has never seen before, with little to no due diligence or critical evaluation of the investment opportunity and to do so within a very compressed period of time. In short, too many of us seem to be looking for the Halloran Brothers.

In the movie, Waymon – with Bobby’s help – is able to revive the failed sale of a premier office building. The new buyers are the Halloran Brothers of the Harlem National Bank. The deal – totaling hundreds of millions of dollars – was executed over the weekend. Apparently, the Halloran Brothers happened to have the tens of millions of dollars in required equity for the transaction simply laying around ready to pounce on the opportunity at a price at which the seller of the property would be all too happy to let the property go. The happy ending of the movie indicates that they were able to raise the commercial mortgage debt necessary to close the deal. The movie was set in 1991 – apparently a good year for real estate. They even had some money left over to buy Natalie a warehouse to start a new nightclub – 50/50 ownership split of course.

We know intuitively that the Halloran Brothers is the rarest of rare phenomena in entrepreneurial finance. What I don’t understand is why we act as if this kind of investor exists in significant number, sitting around waiting for the home run business plan to miraculously appear, or to be presented to them by a mailroom clerk. In reality, this kind of investor exists as the proverbial needle in the proverbial haystack, much less commonplace than their presence as characters in romantic comedies. The rocky shores of entrepreneurship are littered with the crushed hulls of businesses that went looking for capital at the precisely wrong time – when they really, really needed it. After the entrepreneur has tapped his savings, his credit cards, his friends and family. After the business is hurtling headlong into the brick wall of its fixed costs. After the entrepreneur is staring into the abyss of business failure. After his options are woefully limited. While such situations are tailor-made for a Halloran Brothers ride to the rescue, that isn’t how investors usually operate.

The entrepreneur’s best chance of raising capital lies in as many people as possible knowing how excellent she is as a business operator long before the entrepreneur actually starts looking for money. Attracting capital is both about who and what she knows. More importantly, attracting capital from investors is about what she has shown that she can do with it and the investor can’t see that if they haven’t been able to see her in action. I encourage anyone wishing to start a business to find their way into the community of angel investors long before they actually open their doors. In fact, it is easier for an investor to put up capital if the entrepreneur is putting his own skin in the game at the same time so the business owner tapping herself out of personal resources can be a potentially dangerous gambit that throws even more negotiation power over to the investor. As the entrepreneur builds her business plan, she must also invest time in events, receptions and other gatherings where investors tend to hang out. She should get to know a few of them casually. Take one or two out for coffee and bounce a few ideas around. Get second and third and forth opinions. Before she spends any of her own resources, she should get a hearing for her business ideas, the more critical the better. I can almost guarantee that she will garner insights that she never considered. Along the way, the investor gets to know both the entrepreneur and the critical issues surrounding her business. This may not result in the investor eventually placing capital with her should she eventually ask for it, but even a turn down likely will be illuminating. If the business is already up and running, allowing the investor community insight into how the business produces value is the first step in positioning that investor for possible participation.

The entrepreneur is far better off creating their own “Halloran Brothers” than they are trying to find them, except of course in the discount DVD bin.

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