When considering expansion, this is what you need to know:
Strategic Alternatives Strategic Communities State Government Initiatives, Programs M&A Forecast & Valuations Forecast Founder Financing Recapitalization Options Financing Unit Economics Growth Capital Options Global Expansion Distribution Channel Partners
Workforce Competencies Workforce Labor Supply Local Tax Rules & Implications Labor Costs Market Analysis Job & Local Community Contacts Industry Macroeconomic Factors Human Capital Supply Chain Corporate Development Options Business Development Resources
For a detailed overview of your growth options, contact Ephor
opportunities, acquisitions are a natural avenue to bolster market share, build out brands and fuel
longer-term strategic initiatives. Uncertain economic growth means greater competition for market
share, greater focus on retaining customers. It's a " Buyer's Market" and a diversified portfolio
is key to serving the maximum number of customers.
The majority of market leaders have invested in knowledge-based employee teams. This works
well with the overall trend of creating talent pools of junior and senior teams with increased focus
on customer-centric, value-add, knowledge-oriented analytical services.
Founders whom can manage the company beyond its startup and growth phase to successfully
maximize the market opportunity have numerous capital financing options to recapitalize the
business. Founders ready to recap &/or restructure can position the business for the long-term (either to
become the sector or regional market share leader)3, and financing can create wealth for founders, staff a
talented team, and ensure a strategy for the long-term.
It’s an old but true cliché: Business is either growing or dying. The challenge of positioning your company for long-
term success requires long-term fiscal responsibility coupled with capable leadership. The definition of success
is creating the best business model in your sector which includes at a minimum a unique portfolio of
products/services, the best performing workforce, and the best leadership team.
For more information contact us: bedard[at]ephorgroup.com
3 Recapitalization structured investments typically combine both a debt term loan and equity component with the lending amount equivalent to EBITDA. Recap lenders currently seeking double digit returns.
Ephor Group, founded in 2002, is a strategic advisory firm exclusively focused on creating technology
service sector leaders. Since its inception, the firm has provided outsourced corporate development services
and growth capital acquisition advisory services. This set of capabilities and expertise has resulted in
approximately 5,500 new jobs created over the past decade.
Entrepreneur Useful Capital Strategies for 2015 and Beyond Historically growth capital was only available to early stage startups via venture capital. Sources of capital for growing companies was limited to angel investors, startup lending, and personal guarantees. But today, both family office investments and structured debt and equity instruments have become available to entrepreneurs. These entrepreneur friendly useful capital sources are bridging the gap for companies looking to jump the chasm from a small and medium sized business to a market leading enterprise. And jumping the chasm creates the opportunity for wealth creation for founders that is not readily available via other financing instruments. The Availability of Useful Capital For startups driven by innovative founders venture capital can be the perfect marriage of funding coupled with ongoing management support necessary to transform the company into a market leader. But for most entrepreneurs venture capital (VC) is simply not available as the company focus is too narrow1 as annually there are 300,000 new businesses created in the USA, but only 600 companies receive venture capital funding. For most businesses venture capital is simply not available.
1 See Exhibit A1 and Exhibit A2
Entrepreneur Useful Capital is a flexible investment loan that preserves equity.
The Importance of Scale on Enterprise Value There exists large pools of un-invested capital in the United States (>$4B) and abroad which are seeking the safe investment returns of growth capital. Companies that qualify for growth capital instruments have a low risk of failure and above market growth. For entrepreneurs, the value of their business significantly jumps from a subscale valuation to scaled enterprise valuation as they cross the chasm from a single location, product, or customer segment to national or global enterprise. For software, outsourcing, and technology-enabled businesses valuation multiples increase with size and scale. [Contact [email protected] for a list of Market Comparables Valuations for your business] Creating Wealth Through Growth
Did you know that from 1995 to 2009, funded capital backed companies grew sales by 133%, while the average United States company only grew sales by 28%2?
Growth capital is required to scale business operations, to pay for the transition from a small subscale company to a large scaled enterprise, and to create wealth for founders.
2 Capital backed companies grew jobs by 82%, while all other companies in the U.S. economy grew jobs by 12%. These emerging companies are incredibly important to the economy as they represent well over 4X the average American company’s sales growth and nearly seven (7) times their new job growth.
"Growth capital, whether for market expansion, to consolidate, or to create a market leader is an opportunity to
create wealth for founders."
Founder Friendly Capital
www.EphorGroup.com | 24 E. Greenway Plaza Suite 440 Houston, TX 77046 | 1
Founder Friendly Capital Strategies While private equity growth and mezzanine capital is readily available for large, profitable enterprises; venture capital is focused on a narrow segment of industry sectors1. Alternatively, "Founder Friendly Capital" bridges the gap for companies looking to jump the chasm from a small business with limited financing options to a market leader. And jumping the chasm creates the opportunity for wealth creation for founders that is not readily available via other financing instruments.
Summary: Private Company Capital Financing Options: Debt Risk with Equity Returns: An Attractive Financing Structure for Growth Oriented Companies Capital appreciation through public equities, public bonds, and private equity are limited in
desirability by yield, risk, illiquidity, fee structures, and availability. Annually in the U.S. over 100,000 private companies have $5M-$15M in revenue, are
profitable (>$1M EBITDA), and have a CAGR >15%. Ephor Group's team has a 10-year track record of creating proprietary deal flow (identifying,
qualifying, and engaging desirable companies) in asset-light technology enabled business services markets that seek growth capital, and do not have investment bank representation.
Creating Wealth by Overcoming the Chasm and Growing to Scale
Did you know that from 1995 to 2009, privately funded capital backed companies grew sales by 133%, while the average United States company grew sales by 28%2?
Clearly capital is needed for growth. The problem is it takes a lot to transition from a small subscale company to a large scaled company. These emerging fast-growth companies are incredibly important to our economy as they represent greater than 4x times the average American company’s sales growth and nearly 7x times their new job growth. For founders that want to create wealth for themselves and their employees and not only their investors they must choose a capital funding solution which preserves equity as they grow.
1 life and bio sciences, high tech and software, and energy. 2 Capital backed companies grew jobs by 82%, while all other companies in the U.S. economy grew jobs by 12%. Source: GrowthEconomy.org
Founder friendly capital is a flexible investment loan that preserves equity.
Founder Friendly Capital
www.EphorGroup.com | 24 E. Greenway Plaza Suite 440 Houston, TX 77046 | 2
Private Investor Options Private investors achieve capital appreciation through four primary areas: public equities, public bonds (debt), manager-directed private investments (i.e. private equity, venture capital, mezzanine debt), and self-directed private investments (i.e. “angel”). Below are relevant performance data since 2000. S&P 500: 1.5% (Avg Ann Growth) U.S. Bonds: 6.5% (Avg Ann Growth) Venture Capital: 2.0% (pooled, end-to-end) / 0.33x (pooled, cash on cash) Private Equity: 11.4% (Avg Ann IRR) / 0.25x (pooled, cash on cash) Private Debt: No U.S. data available
Options for Investing in Private Companies Professionally managed funds for investment in private companies – venture capital (VC) and private equity (PE) – are most alluring for the possibility of unlimited returns. Over the last 15 years, >50% of VC funds have a negative IRR, and as an industry, venture capital has invested more cash than it has returned. Without the top 25 realized investments out of >20,000 in that time period, the VC industry as a whole would have a negative IRR. As noted in the performance data, >60% of return values used for IRR calculations for active funds over the last 13 years are comprised of still illiquid assets with “mark-to-market” valuations. While a desirable final cash return is possible, the illiquidity and exit risks are unfavorable to investors. Data on U.S. private mezzanine debt fund performance is largely unavailable. European fund performance, for which there are data, is not complete. It is based primarily on large leveraged buyouts (“LBO”), with >75% of returns based on illiquid “mark-to-market” asset valuations.
Founder Friendly Capital
www.EphorGroup.com | 24 E. Greenway Plaza Suite 440 Houston, TX 77046 | 3
Private Company Market Overview According to the latest data by the U.S. Census Bureau, there are approximately 6.05 million companies with employees. 94% of companies (≈5.7M) generate <$5M in annual sales. While most of these companies do not receive equity financing and “bootstrap” growth through operating cash flow or personally
guaranteed debt via bank loans or credit cards, a robust market of capital providers exists to serve this market in the form of VCs and angels. Annually, approximately 60,000 of these companies receive $20 billion of new capital from 250,000 angel investors. Another 2,500 of these companies receive $20B of new capital from 750 VCs every year.
2-3% of U.S. companies (≈135K) generate >$15M in annual sales. 500 of these companies receive $50B of capital from 2,800 PE, mezzanine, and buyout firms annually. The remaining companies are eligible for commercial lending instruments. 4% of companies (≈237K) generate $5M-$15M in annual sales. Private and public
financing institutions do not focus on this segment. The primary sources of capital for these companies are operating cash flow and personally guaranteed debt. These companies are “too big” for VCs and angels, and “too small” for PE, mezzanine debt, and commercial banks.
Founder Friendly Capital
www.EphorGroup.com | 24 E. Greenway Plaza Suite 440 Houston, TX 77046 | 4
Characteristics of Desirable Private Companies The following company characteristics are “desirable” for private capital investors: Meaningful revenue (i.e. >$5M) Profitable with high gross margins Past and projected growth (>15%
CAGR) Majority management/founder-owned Not represented by an investment bank Investment desired is structured to
align interests of owners and investors Participate in a market segment that is
robust enough to accommodate growth and value
These characteristics maximize the following favorable investment attributes: Low risk – statistically less likely to go
out of business or lose money Maximal return – highest valuation
multiples, greatest growth potential Greatest liquidity – a competitive
market segment maximizes M&A and IPO possibilities
Where are Desirable Private Companies? The greatest number and density of desirable private companies exist in the $5-$15M revenue range. This is due to two primary factors: Size: Businesses that are <$5M are high risk; >70% fail via insolvency, and >90% of the remainder never exceed $5M in revenue. Businesses that are >$15M require a) more capital to execute growth plans, and b) have higher prices due to size and competition – a large market of financial sponsors exist specifically to allocate capital to the larger companies. Businesses $5M-$15M are big enough to have a low failure rate (<15%) and small enough to have a high growth rate. Markets: Companies $5-$15M in revenue must have large enough markets to support their business and competitors, but still have room for growth. <$5M companies can exist in niche markets perpetually, and >$15M companies do not have as much room for growth, even if they are in robust markets.
Ephor Group Introduction
Ephor Group | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
Are you at your maximum value?
We help sector leaders become market leaders via the
methodologies created by Garry E. Meier and his associates over the
last thirty-two years.
About Our Name: Ephor Ephors were supervisors of ancient Sparta who swore to uphold the rule, preside over meetings of the council and assembly, and provide expertise and counsel to the king. Ephors were responsible for the execution of all decrees.
About Ephor Group, LLC Ephor Group's mission is to provide the resources required to enable entrepreneurs to achieve their shareholder wealth objectives. Founded in 2002, Ephor Group has deployed approximately $450M of capital on behalf of institutional investors and for our own portfolio, representing 19 companies, resulting in creating nearly $2B in shareholder value. functional expertise, intellectual capital “Creating value is the alignment of all stakeholders with the effective combination of strategic initiatives and day-to-day execution.” –- Garry E. Meier, Ephor Group Chairman.
Top Ten Reasons to Work with Ephor
1. Our mission is to create wealth for our clients.
2. Our value is that we increases earnings, refine business models, implements sustainable long-term infrastructure, and create strategic alternatives for value realization.
3. Our people are industry experienced, results-oriented former owners and operators of businesses with c-level experience, multi-functional, backgrounds, and extensive technology and service industry experience.
4. Our philosophy is holistic, metrics driven, accountability based, and in alignment with the objectives of Board of Directors, institutional investors, and capital markets.
5. Our approach develops organizations wherever they are situated in their business lifecycle - with an advisory scope that covers operating support to strategic positioning.
6. Our capabilities include full spectrum scope of services with expertise in operational improvement, change management, market development, capital sourcing and financial structuring, and strategic planning.
7. Our approach is pragmatic and performance based. We
fill-in the gaps for functional resources and capital that are not internally available.
8. Our objective is to create wealth for all stakeholders by creating market leaders.
9. Our track record to date includes having created over $2B in shareholder value as well as leading numerous companies from early stage development to emerging growth to exit.
10. Our process initiates with a pragmatic assessment of your business which includes a roadmap for improvement.
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