Read the first two parts of this story at Executive Recruiting, part 2 and Executive Recruiting, part 2 continued

So we’ve been working with Mr. Banker for about 5 months by now. It started out pretty well. We had a bunch of great strategy talks on where we should take the business. We also met a bunch of Mr. Banker’s wealthy friends who made start-up investments to discuss our business and get some feedback on our investor presentation. Unfortunately, this was the extent of Mr. Banker helping us raise money. We had about three of these such meetings and received some decent feedback on the materials. It felt a lot like giving your 10th grade English paper to 3 different teachers. We received 3 different answers on what was important and what was not, etc. The changes were mostly to the financial forecast, since they felt that our numbers were too high, not ridiculous, just unrealistic.

In between business and strategy meetings, we’ve been working with our lawyers in CA to finish the contract with Mr. Banker. This has been quite an ordeal, since our lawyer out there has been sick, traveling and out of the office on-and-off for about 3 months. Needless to say, I was very frustrated with the turnaround on our changes to the agreement. There’s been a lot of back-and-forth, and quite a large legal bill. I hope they will allow us to defer the charges until we actually raise some money.

Over the past month especially, Seth and I have grown a bit concerned with the direction the contract has been heading. We’re trying to compromise on many issues but feel we’re just not reaching agreement on many things. About two weeks ago, Seth and I had a long talk about this and spoke at length with a few of our advisers. While we felt that it would benefit us to have some “gray hair” on the team for credibility, it was becoming increasingly frustrating to get things done. We felt that Mr. Banker was pulling us in different (i.e. the wrong) directions and that many of these distractions were actually slowing us down from pursuing our vision for OnCard Marketing. There were obviously many other reasons that Seth and I discussed but I won’t share them here. In the end, we couldn’t come to terms that we thought were reasonable and fair (i.e. in our best interest), and the way these negotiations were going just didn’t seem right.

About two weeks ago, we put a contract in front of Mr. Banker that Seth and I (and our lawyers) were comfortable with, one that gave us adequate protection in case things ever went south with Mr. Banker. We realized that it was a reversal from previous drafts of the contract. However, neither Seth nor I were comfortable with this deal. We were about to give up just way too much for what we felt was a huge potential headache. In short, we had a change of heart. Things transpired over the past 5 months that just made us uncomfortable with the original deal, and we weren’t going to settle. We sent the revised contract to Mr. Banker about two weeks ago, and he wrote back two days later with a lot of interesting language and emotions. I won’t disclose the contents, but feel free to use your imagination. Seth responded with what we thought was an “olive branch” email, and we haven’t heard from him since. Seth and I are still upset with how things ended, but like everything else, we believe it’s for the best. Despite our initial amazement at how fast things sizzled out, we are happy that we did not make a huge mistake by signing that deal. We think that it will be the best for us, the company, and our shareholders. In just the past week, we realize how much faster we are moving again with all the things that need to get done. We’ll just keep rolling with the punches…

Bottom Line: Don’t sign a deal if it doesn’t feel right. We got caught up in the excitement of signing our first deal and didn’t step back to think about the repercussions of what we were signing until the last minute. If you are the founders of your company, keep it that way. Don’t give away equity or kudos too easily. We thought it would be a good trade-off for what we were getting but realized in the end we should have had more faith in ourselves to run the company. Make sure you get advice from advisers and lawyers before signing any deal that involves giving equity away in your business. If you have a good idea, people will try to convince you to give them a piece. Like one of our advisers told us, you can’t take equity back once you’ve given it out…

JT

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Collecting investor checks…

February 20, 2007

So we’ve started collecting investor checks this week after two months of following up with prospective investors with our business plan and legal documents. This is a grueling process. Our first investor was actually a family member and our second was a family friend of my parents. There are a couple other checks from family members in the mail we should received shortly. We are so happy that they have put their trust and confidence in us to protect their investment. We will do everything we can no to let them down! As corporate treasurer, book-keeper, and CFO (among other less glamorous titles), I deposited the checks into our Citibusiness bank account proudly and am excited to see our account balances shoot up when we get our bank statement at the end of this month.

Raising money is the least fun activity we’ve had to go through. I’ve been leading the charge on this, given my background in investment banking and general understand of the legal documentation and financing jargon. It is definitely humbling to ask the people around you to invest in your new business. At this point, I realize they are investing in us; my contacts are investing in me, and Seth’s are investing in him. I guess this is what I’m hearing about VCs investing in the management teams of start-ups. It’s just because there’s nothing else to invest in at this point. However, friends and family know me personally and are much more likely (hopefully!) to put their faith and their money in me and our company. I can tell already that it will be challenging to convince complete strangers (VCs and Angels) to take a ride on our stock until we can show them business progress as a grounds for making an investment. We’ll just have to keep pounding the pavement…

JT

Seth and I have been discussing our marketing plan for OnCard Marketing and iBakeSale over the next few months. After talking with friends, advisers, and other entrepreneurs, we’ve come to the conclusion that we should look into PR (public relations) as a way to get the word out there about our first consumer rewards program, iBakeSale (currently in final stages of development). We simply cannot afford more expensive marketing and advertising options given our tight budget and bootstrapping mentality. With PR, we can hope to manage our finances with a monthly retainer fee and with enough guidance, formulate a PR strategy that will get us press in various consumer publications, both on-line and off-line, to tell consumers about iBakeSale and encourage them to sign up for the program.

Similar to our predicament when beginning our search for a law firm a few months back, I found ourselves without a list of contacts in the PR field. So it was back to being resourceful, contacting other entrepreneurs who had used PR firms in the past and using a website called O’Dwyers, which is a huge listing of PR firms by concentration (i.e. tech, health care, industrial, consumer packaged goods, etc.). I sent about 20 emails out to the cold contacts and to the warm contacts provided to me by my fellow entrepreneurs. I have already received 10 responses back and have phone calls scheduled with 7 for next week. I’m hoping to wrap this up in the next 4 weeks, solicit proposals, meet the firms in-person with Seth, and then make a decision with Seth and move on to the next project. I’ll let you know how it goes…

Bottom Line: As far as I’ve heard, there is no better option than PR as a primary marketing strategy for a start-up. If most start-ups are like ours (which I assume is the case), they don’t have the money for direct mail, internet marketing and the like. You need to be resourceful and get the word out cheaply. PR will hopefully take care of that for us. Use referrals from other friends/entrepreneurs who have worked with specific PR firms in the past. A personal referral can go a long way. O’Dwyers is also a great resource in case you don’t know where to start. Ideally, you want to meet with 3-5 firms, get proposals and see what their proposed budget is. For an early stage company, expect to spend anywhere from $6k to $10k per month. I know it seems like a lot, but it’s a lot cheaper than the alternatives, and some well-funded start-ups spend over $20k per month on PR. But hey, you’ve got to start somewhere. More on how to select a PR firm in a follow-up post…

JT