Steps to Growth Capital New Tech Case Story

New Tech Case Story — Overview

The Company

New Tech Distributors Corp. (New Tech) assembles and distributes computer components from their facilities in Burnaby, British Columbia. The company distributes 30% of its products to companies in the United States and the balance across Canada. Stuart Chip, 38, started the company in his basement in 1995. He had just returned to Canada after spending five years with Digimoti, a Japanese semiconductor company. Today, New Tech has 20 employees and approximately $3 million in annual sales.

New Tech distributes computer components by courier, primarily to the replacement market, including small computer repair shops, as well as larger retail and service organizations. About 70% of its volume is transacted with small businesses while the balance is with larger "blue chip" companies. About 80% of the company's products are purchased from third-party suppliers and delivered to customers with no value added. The remaining 20% consists of computer power modules, which the company assembles.

Stuart currently owns 100% of the company but is considering offering some shares to his management team: Elizabeth Pratt, accountant; John Harley, sales manager; and Kevin Matley, who heads up production.

The company has experienced rapid growth, and research indicates its market continues to expand. Many computers in use now are showing signs of age; repairs are common and many users want to upgrade their existing computers. Home personal computers represent a growing market but, given New Tech's relatively small sales volume, the company believes it only accounts for 0.5% of the total North American market. Its marketing plan shows the company doubling sales in less than five years.

Challenge: How to Grow?

Despite Stuart's initial success, he is concerned that New Tech cannot continue to grow without an injection of additional capital. His bankers have advised him that he will not meet New Tech's sales objectives without such an infusion. Stuart wants to expand the power module side of the business by introducing a new line of products. At this point, he is considering non-conventional financing. But he has never done this before. Where does he start? How complicated is the process? How much money does he need?

An Advisor

Clearly, Stuart needs some answers. His banker recommends meeting with a financial advisor and gives him three names. Stuart interviews the three candidates and chooses one after checking references, including their past experiences raising financing for small businesses in his industry.

Stuart chooses Grand Argent, a financial advisor with experience in raising venture capital and knowledge of the computer hardware industry. Stuart wants Grant to help guide New Tech's effort to secure the investment they need.

Solution: Attract Growth Capital

When they get down to work, Stuart asks Grant to outline, on the whiteboard in his office, the proces required to raise financing. Grant lists the steps to growth capital:

• Identify New Tech's financial needs.
  
• Determine possible funding sources.
  
• Demonstrate New Tech's investment potential.
  
• Demonstrate New Tech's management capabilities.
  
• Prepare an investment proposal.
  
• Identify potential investors.
  
• Meet with potential investors.
  
• Negotiate the deal.
  
• Close the deal.
  

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