“Consultant warns about 'vulture capitalists'”

Nashville Business Journal, by Judy Sarles, November 19, 1999

Although she is a big fan of venture capital herself, Laura Campbell warns businesses to beware of "vulture capitalists."

Campbell, owner of Laura Campbell and Associates, spoke recently to a group of women business owners during a program titled: Dollars and Sense: Opportunities for Women in Business. Laura Campbell and Associates is a firm that assists businesses and investors in capitalizing on new growth opportunities. Approximately 30% of the firm's customers are women. "We're really excited to have them as part of our client base," says Campbell. "We are seeing an increasing number of women-owned businesses."

During her presentation, Campbell went down a list of strategies businesses can use to protect themselves from vulture capitalists. The vulture capitalists, she says, are investors who may make such a huge investment in a company the original business owner or CEO will find his stake greatly reduced.

She gave an example of a company where the original CEO was escorted out of the building by security guards, while the new CEO selected by investors waited in the parking lot to make his entrance.

In a phone interview, Richard Burtner, chief financial officer and a founder of BlueStar Communications, a Nashville-based digital subscriber line provider, noted how his company avoided being swept up by vulture capitalists. He says the company's original CEO, Fredjoseph Goldner, was one of the founders of the company. "From the beginning, we always knew he would step aside," says Burtner. "It was more a question of wearing two hats until we located the right CEO." Today, Goldner is BlueStar's chief operating officer. He was supplanted as CEO by Robert Dupuis, now BlueStar's CEO and president. Dupuis was put in place by CrossPoint Venture Partners, the Woodside, Calif.-based venture capital firm that has brought millions of dollars in investment capital to BlueStar. Dupuis was an executive on staff with CrossPoint.

Burtner says BlueStar purposely planned for the replacement of its CEO, so it was not a surprise move by the investment company. "Before we even knew CrossPoint, that was part of our business plan," he says.

Campbell advises companies to manage their cash, so as not to be desperate, as another way to protect themselves against vulture capitalists. "You want to maintain ownership of as much of your business as possible," she says. She also suggest that business owners talk to CEOs of other businesses that have received funding from an investor as a way to gauge the investor's tactics. "Most importantly, trust your instincts," Campbell told the women business owners. "I think women are often noted for their gifts in processing information that's more of a feeling nature."

In a later interview, Campbell said that a lot of executives eager to fund their businesses need to remember to analyze investors to make an educated selection. However, she says," the vast majority of venture capitalists are highly reputable and they provide immeasurable benefits to the community. Without venture capitalists, thousands of companies would not be launched due to the lack of funding.

Also speaking during the program was Coco Kyriopoulos, an associate in the Investment Banking Group at Nashville-based JC Bradford & Co. Kyriopoulos offered information on how a company can decide whether it is ready to have an initial public offering (IPO). She says a company is set for an IPO when it has a solid operating business and has great growth prospects. The company doesn't necessarily have to be the market leader or the biggest company in the market. "What is expected is that you are a leader in a niche area."

Year-to-date in 1999, she says, there have been 429 IPOs, and they raised a total of $50.6 billion. Kyriopoulos notes that it's a whole new ballgame for Internet and Web-based companies. "Instead of going through several stages of venture capital financing, they're going straight to the public market. They're just speeding up the process."

Tina Hill, owner and president of Tennessee Equipment Sales and Installation Inc., a Nashville-based company that installs stadium seats and athletic equipment, found the Dollars and Sense program to be helpful. "What I was looking for was information on alternative borrowing. Laura Campbell gave me someone I can see."