By Brian Rich, Catalyst InvestorsBrian Rich is managing partner and co-founder of Catalyst Investors and serves on the Executive Committee for the NVCA Board of Directors.Fundraising is a stressful process. You do all you can to impress prospective investors by honing the story, optimizing key metrics and making your company look as attractive as possible. But before you decide the amount of money you raise and the type of investor you want on board, you must decide the kind of relationship you intend to have with your new partner — what role they will assume and how you foresee working together.The question is, will you lead, follow or get out of the way?LeadIf you want to maintain leadership of your company, structure your deal in a way that positions you unequivocally as the majority owner and with the investor as a minority. Most importantly, find the right investor who is happy in this role (and will not attempt to be a backseat driver).These investors accept the risk and reward that comes with remarkable entrepreneurs who are motivated and passionate. Companies like Alphabet, Facebook and Snap (pre-IPO) have made investors more comfortable with this scenario. Super voting shares have been around for a long time; any investor in a company with them accepts the benefits and consequences. The entrepreneur, on the other hand, is firmly in the driver’s seat.Because it is in no one’s interest to have an unhappy investor, be sure to pre-agree, whether in documentation or in principle, to the nature and time frame of exit, the need for future capital raising and a clear indication of your strategic intentions over the mid- to long-term. Carefully negotiate the minority investor’s ability to block your ability to do what you want to do.FollowPerhaps you have concluded that you have taken your company as far as you are able, but you think there is significant upside and you want to remain invested and involved. In this scenario, you are seeking investors you trust and you believe the outcome will be better with them than without them.This agreement is not just about taking in capital — you must allow and trust the investor to lead. In doing so, you are acknowledging, implicitly or explicitly, that at some point you may not be a part of the management team. Here, it is you who are on the receiving end of agreeing on your minority rights. Negotiate carefully your rights to board representation, compensation and exit, and carefully consider taking some “chips” off the table.Some years ago, we exited a terrific growth company and earned a 10x return on our investment. The entrepreneur stayed on as CEO and took in a new, well-respected investor as majority owner with a significant amount of preference shares ahead of the entrepreneur’s equity. The entrepreneur took minimal liquidity as part of the transaction. Unfortunately for the entrepreneur, the growth slowed, and the preference has potentially eaten away much of his equity.Get out of the wayPerhaps you have concluded that the next five years are fraught with risks that are more apparent to you than to the marketplace. Or maybe you’ve been working hard and are just ready to reap the rewards of your efforts and step aside. Here, your first choice would be to exit entirely, but you know that doing so will suggest to the market that something is awry and you are economically better off staying invested with your retaining as little ownership as the investor will accept.In this case, the win-win situation is for you to maximize liquidity at the expense of governance and simply protect your downside going forward. You will want to have the right, but not the obligation, to seek liquidity concurrent with the investor while retaining the right to co-invest in case things go well. Having a board seat may or may not be of interest, but you’ll want the right to observe. My advice here is to think of your stub investment as “zero” and if it works out better, fabulous!I’ve seen terrific management teams that fundraise poorly and mediocre operating teams that are brilliant at capital formation. There is no shortcut to fundraising — it requires a great deal of thought and strategic planning. It is of absolute importance that entrepreneurs spend the necessary time doing the research to find the right investors that will add value to their businesses and whose interests and objectives are well-aligned with both management and the existing investor base. But, most importantly, it is incumbent upon the entrepreneur to first decide whether to lead, follow or get out of the way.
Venture Deals
• Futu Securities, a China-based financial services company, raised $145.5 million in Series C funding from Tencent Holdings. Existing investors Matrix Partners China and Sequoia Capital China participated. Read more.
• Actility, a France-based machine-to-machine communication platform, raised $75 million in Series D funding round. Investors include Cisco Investments, BNP Paribas, Creadev, Orange, Inmarsat and Robert Bosch Venture Capital.
• Clutter, a Culver City, Calif.-based provider of on-demand self-storage services, raised $64 million in Series C funding. Atomico led the round, and was joined by Sequoia Capital, GV, and Fifth Wall.
• Fusion Risk Management, a Rolling Meadows, Ill.-based provider of SaaS software for business continuity risk management, raised $41 million in Series C funding. Catalyst Investors led the round, and was joined by Level Equity.
Catalyst invests $41 million in Chicago firm Fusion Risk Management
By John Pletz
Unless you spend an inordinate amount of time worrying about the next disaster, you probably don't know Fusion Risk Management.
That's about to change. The Rolling Meadows-based company just landed $41 million, led by Catalyst Investors.
Fusion was founded in 2006 by David Nolan and with former colleagues Vic Fricas, John Jackson and Bob Sibik, who ran the disaster-recovery business at Rosemont-based technology equipment-leasing giant Comdisco. They've long toiled in the unsexy niche of helping big companies plan and handle disasters, from hurricanes to terrorist attacks. Nolan says Fusion goes a step further, from helping companies draw up plans to actually managing them. Its software helps digitize and automate those plans by enabling simple but crucial elements such as updating the people responsible for certain tasks.
"We're getting people to think differently about business continuity management," said Nolan, 58. "The problem with most risk tools is they point out the problem, not how to fix it."
Fusion customers sign up for multiyear subscriptions, mostly in the upper five figures, starting as low as $20,000. One-third are over $100,000.
The company has grown to 160 customers, including three in the top 10 of the Fortune 100, Nolan says. Among its big customers are Deerfield-based Walgreens and Chicago-based TransUnion.
"If you just looked at the company's profile, it's hitting its stride and had reached a certain level of scale," says Ryan McNally, a partner at New York-based Catalyst Investors, which provides growth capital to later-stage companies. It had been looking at the broader space of tech-enabled service companies in governance, risk and compliance when it was introduced to Fusion last year.
"They've had some really great wins with Fortune 500 companies, and they seemed to be beating the competition head to head," McNally said. "They were showing 50 to 60 percent top-line growth, flirting with profitability. The financial indicators were that there's something here, and it's working."
Fusion raised $2.3 million from angel investors in 2014, then another $8.1 million from Level Equity at the end of the same year. Since then, the company has grown from 17 employees to 70. It's doubling both its headquarters space at 3601 Algonquin Road in Rolling Meadows to 11,000 square feet and its downtown office at 2 N. Riverside Plaza to 13,500 square feet.
Nolan said some of the new capital will go to co-founders, as well as to beefing up the company's balance sheet.