ATTRACTINGINVESTORSA MARKETING APPROACH TO FINDING

FUNDS FOR YOUR BUSINESS

Philip KotlerHermawan Kartajaya

S. David Young

John Wiley & Sons, Inc.

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ATTRACTINGINVESTORS

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ATTRACTINGINVESTORSA MARKETING APPROACH TO FINDING

FUNDS FOR YOUR BUSINESS

Philip KotlerHermawan Kartajaya

S. David Young

John Wiley & Sons, Inc.

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Copyright 2004 by Philip Kotler, Hermawan Kartajaya, and S. David Young. All rightsreserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the1976 United States Copyright Act, without either the prior written permission of thePublisher, or authorization through payment of the appropriate per-copy fee to theCopyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to thePublisher for permission should be addressed to the Permissions Department, John Wiley& Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used theirbest efforts in preparing this book, they make no representations or warranties withrespect to the accuracy or completeness of the contents of this book and specificallydisclaim any implied warranties of merchantability or fitness for a particular purpose. Nowarranty may be created or extended by sales representatives or written sales materials.The advice and strategies contained herein may not be suitable for your situation. Thepublisher is not engaged in rendering professional services, and you should consult aprofessional where appropriate. Neither the publisher nor author shall be liable for anyloss of profit or other commercial damages, including but not limited to special,incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:Kotler, Philip.

Attracting investors : a marketing approach to finding funds for yourbusiness / Philip Kotler, Hermawan Kartajaya, and S. David Young.

p. cm.ISBN 0-471-64656-3 (cloth)1. Venture capital. 2. Small businessFinance. 3. New business

enterprisesFinance. I. Kartajaya, Hermawan, 1947 II. Young, S. David. III.Title.HG4751.K68 2004658.15'224dc22 2004008610

Printed in the United States of America.

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CONTENTS

Preface vii

Part One INTRODUCTION 1

1 Marketing to Investors and Lenders: What the Capital Markets Want 3

2 Raising Capital: An Overview of Your Alternatives 17

Part Two UNDERSTANDING INVESTORS AND LENDERS 55

3 Early-Stage Financing: The Role of Business Angels 57

4 Private Equity: Unleashing Your Companys Potential Value 73

5 Lenders: Raising Funds from Banks and Other Financial Institutions 117

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Part Three TOOLS FOR ATTRACTING AND KEEPING INVESTORS AND LENDERS 169

6 Strategy: How to Win Investors Mind Share 171

7 Tactic: How to Win Investors Market Share 189

8 Value: How to Win Investors Heart Share 213

Part Four EPILOGUE 235

9 Get Your Marketing Right! 237

Index 241

CONTENTS

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PREFACE

THE PROBLEM: YOUR BUSINESS NEEDS MONEY

Its money that makes the world go around. Every existingbusiness firm and start-up firm needs money. Money mustbe borrowed to support payroll, material, equipment, andother costs before any revenue materializes.

If you picked up this book you may be an entrepreneurwho is burning with a hot idea. You will importune family,friends, neighbors, venture capital firms, and banks for help.You will promise a several-fold return. You will argue that thisis not charity, but a chance for the investor to make moneywhile helping you build a great new business.

Or you may be an existing small business owner who runsinto a cash flow problem. You will rush to your bank pleadingfor an extension of credit. You will need to make the best caseto convince the bank that you will be able to pay back itsfunds with interest! You might have to seek out another bank,or friends, family, or neighbors for financial aid to carry yourbusiness through the crisis.

Or you may be part of a rapidly growing large firm that

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needs substantial amounts of cash to build new factories andopen new markets. If you are the companys financial vicepresident it is your job to envision the best mix of investorsourcescommercial banks, investment banks, stock issues,debentures, and so onto pursue. You have to demonstratethat the companys growth is real and will amply reward the investors.

Finally, you may belong to a large company that is indeep trouble. Your company badly needs money but is seenas a poor risk. Investors will be available but at a high costof capital. How do troubled firms attract capital at a not tooruinous cost?

THE SOLUTION: MARKETING

We believe that marketing concepts can help all these types offirms do a better job of attracting the funds they need. Our an-swer is not to knock on every possible investors door in thehope of finally finding a benefactor. Marketing theory andpractice involve a highly disciplined approach to identifyingthe best sources of capital and convincing them of a high reward-to-risk ratio in lending their funds. This book will explain thedifferent sources of funds and how investors and lenders de-cide whom to back from among competing borrowers. Onceyou understand how different types of investors and lendersthink, you can identify your businesss best prospects andmake your best case for financial assistance. Every busi-nessperson is ultimately competing for capital and must mar-ket with hard facts and convincing arguments.

PREFACE

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The first part of this book is an introduction and overviewof the capital markets. The second part describes how capitalmarkets operate. The third part describes how marketing con-cepts and tools can aid in the process of attracting the capitalthat you need for your business.

Good sailing in the money waters!

Philip KotlerHermawan KartajayaS. David Young

PREFACE

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PART ONE

INTRODUCTION

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1Marketing to Investorsand Lenders: What theCapital Markets Want

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WHAT INVESTORS WANT

TRENDS IN RAISING CAPITALGlobalizationAdvances in TechnologyFinancial InnovationChanges in Attitudes toward Savings and InvestmentGrowing Dominance of Institutional Investors

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