Recently, the Atlanta Small Business Network was on-location at TiECON Atlanta 2022 where anchor Jim Fitzpatrick spoke with Gregg Ficery, the Founder and President of Integgra Valuation & Advisory Services.
Stay tuned for more coverage from TiECON Atlanta 2022!
Transcription:
Jim Fitzpatrick:
Gregg, tell us what your company’s all about.
Gregg Ficery:
Okay, thanks. I’m Gregg Ficery and my company is Integgra Advisory Services. It’s a business valuation consulting company, which sounds a little mysterious to people. Valuation basically means appraisal. So I’m figuring out what companies are worth for…
Jim Fitzpatrick:
Okay. That’s got to be a very difficult task, right?
Gregg Ficery:
It can be, especially for the early-stage companies that don’t have much revenue or profitability. So you have to be a little artful in the methods that you use to figure out what they’re worth.
Jim Fitzpatrick:
That’s right. And obviously everybody wants to get as high a valuation as they can when they’re looking for funding. And then of course anybody funding wants to get that valuation as low as they possibly can.
Gregg Ficery:
And then the companies, while they want high funding values then they want low values to issue their employee stock options. So they get themselves into a little conflict there.
Jim Fitzpatrick:
Yes, yes. It’s like Trump’s appraisals on his New York apartments, right?
Gregg Ficery:
Maybe.
Jim Fitzpatrick:
Similar, right?
Gregg Ficery:
That’s what I hear.
Jim Fitzpatrick:
But that’s right. So where does that stand today? You’ve got so many companies out there, so many entrepreneurs that come up with some tech that is going to cure so many ills out there in the world. And it might be a billion-dollar company in a year or two but right now it’s a concept. What is a concept worth?
Gregg Ficery:
Right. Forecasts are a very mysterious thing. So companies can really get themselves into trouble if they over-promise and under-deliver on their forecast. They might get that high funding valuation, but before you know it the CEO might be out of a job, if they can’t live up to that with their investors.
Jim Fitzpatrick:
Sure. How does an entrepreneur, for those that are listening say, “Well, I’ve got a concept. I don’t really have a proven concept. I haven’t sold it to anybody yet but I’ve got this concept that I know, I got the blueprints of it. I’m in a very, very early stage and I think it’s going to be a unicorn one day but there’s no revenue. There’re no customers, there’s no proven concept. When I go to search for money out there, how much of my company do I give up?”
Gregg Ficery:
There’s a little guideline that companies shouldn’t give up more than 20% of their company in any particular one fundraising event. And experienced investors know roughly what the range that they’re willing to invest in for a pre-revenue company. But companies can really shoot themselves in the foot if they shoot too high and aren’t prepared in that pitch process. So they go into the Shark Tank and if they aren’t prepared and ask for something too much, it almost doesn’t matter what they have to sell or say, the investors will just tune out and say, “Can’t do that.”
Jim Fitzpatrick:
Right. What are some of the things that investors want to hear in that pitch process? What are they looking for?
Gregg Ficery:
Experience and sales, I’d say are the two biggest things.
Jim Fitzpatrick:
Okay. So if I’ve had two exits already and they were both hugely successful companies, I could be selling wool sweaters on the beach I’m going to get money?
Gregg Ficery:
Carries more weight than anything.
Jim Fitzpatrick:
Conversely, somebody that comes out of Georgia Tech and been out a few years, came up with a great product. People are like, “We don’t know. We don’t—the skills necessary to run a company.” And what have you.
Gregg Ficery:
It’s going to be a harder sell and some revenue is going to help them get over the hurdle there.
Jim Fitzpatrick:
That’s right. Which comes first, the chicken or the egg, because I can’t get the revenue until I get some of the funding, right?
Gregg Ficery:
Right. Unless it’s in one of the hotter spaces, that helps. If you’re in FinTech or healthcare IT or a SaaS software, B2B, you’re going to have a better chance than some consumer tech or just retail in general.
Jim Fitzpatrick:
So who brings you in? The investor to say, “Hey, how much is this company worth?” Or does the company bring you in to say, “Before we go to market, what should we be looking for?”
Gregg Ficery:
It’s usually the company.
Jim Fitzpatrick:
The company that brings you in. Okay.
Gregg Ficery:
If they’ve got some advice from an investor or an advisor to say, “You should get some help with this.” Especially somebody like Sid Mookerji who’s the president of TiE Atlanta right now. In his Silicon Road VC, he might hear a pitch and say, “Talk to Gregg.”
Jim Fitzpatrick:
And you’re going to shoot him straight. You’re going to say, here’s… What—a range to say, “Your company’s worth maybe a million to a million and a half.” Or whatever.
Gregg Ficery:
I’ve developed a worksheet that we share online and they can see how it works. And it’s very appealing and it takes the mystery out of it, and there’s research and data behind it that gives them confidence that I’ll come up with a fair objective value.
Jim Fitzpatrick:
Okay. Do you often find from the founders, they go, “Wait a minute, we think this is worth so much more. We don’t want to give up this company for…” If you evaluate it a million dollars, we think it’s going to be worth 10 million dollars in six months and-
Gregg Ficery:
Sometimes they might learn a painful lesson.
Jim Fitzpatrick:
I would imagine many times they go, “We really need to go back to the drawing board.”
Gregg Ficery:
If they spend a year or two out there and nobody’s biting, they might want to adjust.
Jim Fitzpatrick:
Yeah. Is the reason that people don’t bite is because the investment won’t get the investor enough of the company? Or because the company doesn’t have the validity or the sex appeal that they’re looking for?
Gregg Ficery:
Yes and yes, probably.
Jim Fitzpatrick:
Yes and yes.
Gregg Ficery:
If the value’s too high, as I said, it just not going to happen. But if the product is right and appealing, yes. But some sectors just have a bad wrap against them. Maybe ed tech is one of the things that struggles because of the long sales cycles with schools and university and the low budgets. So they might have some great solutions that you think, kids, this is a great learning tool, but actually driving revenue and process is another story.
Jim Fitzpatrick:
What are some of the hot industries right now for entrepreneurs to have to build a tech in to look for that funding?
Gregg Ficery:
FinTech has historically been extremely hot, especially here in Atlanta, this is known to be the FinTech center of the country.
Jim Fitzpatrick:
Right.
Gregg Ficery:
But valuation wise, while everything was excessively high late last year, that sector has taken a bigger hit in valuations than anything so far this year.
Jim Fitzpatrick:
Yeah, for sure. We interviewed the founders of Kabbage and we also interviewed the founders of GreenLight. And they both had these concepts early on and they said, “Here’s what we want to do.” One was to give money to small businesses that neither don’t have great credit ratings or what have you, so tight or so hard to get money from small banks for small businesses, I should say. But they came out with this concept and people thought, “What are you crazy? You’re going to give money to small business owners that don’t have any money.” And obviously that took off. But it was hard early on to sell that concept, the same thing with GreenLight.
Gregg Ficery:
Microfinance is very hot. There’s another successful one I’ll give a plug too. Family friends called VIVA Finance that has started out of the gate very strong in that sector.
Jim Fitzpatrick:
And what do they do? What do they offer?
Gregg Ficery:
I think it’s also a micro-lending platform, a payday lending type thing. And the valuations are there but then again, we’ll see like Kabbage had super high valuations but question, were they profitable? Maybe not.
Jim Fitzpatrick:
Right. Because a company, it doesn’t need to be profitable nowadays in order to come up with valuation, a high valuation. We see the WeWorks of the world and we see all these companies and Uber and so many where it’s like, “Oh yeah, we have no bottom line but we are worth $20 billion.”
Gregg Ficery:
That’s the-
Jim Fitzpatrick:
That’s got to be a hard thing for you.
Gregg Ficery:
… billion dollar question. For a company to be a unicorn that’s not profitable, that’s still hard for me to process as an investor myself. The magic question is, at what point does the company have to become profitable? Because I always wonder when a company’s at series E, F, G, H, raised over a hundred million dollars and they-
Jim Fitzpatrick:
And it still not-
Gregg Ficery:
When does it have to become… Will it ever become profitable?
Jim Fitzpatrick:
Does it ever need to be profitable? Or can the hype just continue? We see Tesla and we see Uber and Twitter and-
Gregg Ficery:
Value turns out to be in the eye of the beholder. Some of those big companies that you’ve mentioned that have sold for maybe less than their private company valuations ultimately, but still for a lot, close to a billion dollars for something that wasn’t profitable. There’s perceived value in their client list. So I think that’s the answer. When a company, maybe their business model doesn’t work and they know they’re not going to get there, they’ll sell and get what they can for the value of the relationships to other companies. And I think that’s their lifeboat.
Jim Fitzpatrick:
That’s right. That’s right. It’s interesting that you’ve got a guy like Elon Musk who’s not making much of a profit buying a company that’s not making any of a profit. I guess he’s big on buying companies that don’t turn a profit. I’ll trade you my bad stock for your bad stock.
Gregg Ficery:
I like my Tesla.
Jim Fitzpatrick:
I know Tesla’s a great car, no question about it.
Gregg Ficery:
But do they make money? Maybe, one day.
Jim Fitzpatrick:
I know. Depending on how you figure it, right? Take out the tax benefits, it might be a different story but it’s something.
Gregg Ficery:
And those come and go.
Jim Fitzpatrick:
Yeah. What advice do you have for entrepreneurs that are listening to us have this discussion right now with regard to putting the value on their company? Obviously, to call you, but other than that.
Gregg Ficery:
Integgra.com with two Gs. In this environment where valuations are trending downward, it’s a time to hunker down. I think it’s not a revelation to say it’s time to focus on sales. And you’re ensuring that your business model works. So you’re prepared and you’re going to have to have a little more proof of concept to go out and raise money.
Jim Fitzpatrick:
And are you saying that’s because there’s not as much dry powder on the sidelines as maybe there were of just a year or two ago?
Gregg Ficery:
That’s an interesting comment. I think, actually the dry powder still seems to be out there, which is interesting. But I think people, the investors especially that carry a lot of the dry power are becoming more respectful, more conservative, more thoughtful. Instead of just spending like drunken sailors.
Jim Fitzpatrick:
That’s right.
Gregg Ficery:
They’re looking for-
Jim Fitzpatrick:
A little more meat. There’s a big pressure on them to deploy their capital.
Jim Fitzpatrick:
Right. I know.
Gregg Ficery:
Because they don’t get paid to just sit with cash.
Jim Fitzpatrick:
That’s right. And in many cases they lose it-
Gregg Ficery:
And that’s really what drives a lot of the over aggressive valuations. If they have to go spend money on things that they can’t find enough good companies, the valuations go up. So it’s a little bit of a flaw in the process actually.
Jim Fitzpatrick:
Sure. Companies don’t mind it though when they get that big fat check and they go, “Wow.”
Gregg Ficery:
But it makes it harder for the smaller funds and even angel investors to participate in good deals when they see that valuations don’t make sense, but they want or need to participate. As an individual angel investor, I don’t need to write a check, I am in no obligation to write that check. But smaller funds that have to… Maybe they have a tough decision on whether to overpay maybe, to deploy their capital.
Jim Fitzpatrick:
Sure. Sure. And if people want to know more about this, who do they go to?
Gregg Ficery:
Integgra.com, with two Gs. I’m happy to help. So typically with the early stage companies, it starts with the funding valuations in the Shark Tank. And then they eventually issue options to employees in what they call the IRS 409A valuation. It happens annually when they issue options. And then things come along like partnership buyouts and gifting to trusts and M&A.
Jim Fitzpatrick:
Right. You’re a good guy to know.
Gregg Ficery:
Yeah. Fortunately there aren’t many of me around.
Jim Fitzpatrick:
We’re going to show all the information on the screen to get a hold of this guy because this is the guy that you want in your corner when the time comes. So thank you so much for joining us on the show, really appreciate it.
Gregg Ficery:
I enjoyed it.
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