Money and Potential

Good Morning Diane,
I just wanted to let you know that last nite I called a former executive of Maveron. Maveron is a company in Seattle that provides money (venture capital) to start up companies. It is made up of a group of investor's who fund about $20 million a year to start ups. The person I called spent 2008/2009 handling all the "potential" investors. Here is what he told me,

99.999% of the people who had a business idea came to him with a business plan and a marketing plan. He said that no serious business person would think that anyone, including a bank, would give you money without a business plan. We also discussed what it takes to get financing from a bank. Today, he is the CEO of a company belonging to Paul Allen (co-founder of Microsoft) and he told me that it is EXTREMELY difficult to get financing for anything. Banks and investors want to see certain things in the business plan. One is that the person proposing the plan has indicated how much money (and must show the money) he/she will invest in the idea - and it must be a significant amount; second, the plan must show traction early on in it's life (a dig in and start making money). Maveron's portolio includes: Cranium, Shutterfly, EBay, Capella University, and many more. I thought you might recognize these companies.

After only a couple of minutes in to the conversation, he stopped me with his take on what was happening at Diamondhead. He then went on to tell what "would happen to Diamondhead" if the venture was not successful. He was very clear that Diamondhead is in control of this situation; not Mr. Brown. Diamondhead has what Mr. Brown needs to make his venture profitable. He said that Diamondhead should be making the terms, not Brown, and that Diamondhead should have Mr. Brown put up a portion of the money in good faith. This money would not be refundable if Brown can not build.
1. A business plan does not cost you money; you must do your homework and put together the information. It is a written document. The business plan tells potential partners how well you understand what you are doing and that you have what it takes to make the project/company a reality.

2. A business or marketing plan does not include the "plans" as in the blueprints......the blue prints come after you have obtained your financing. He indicated that Mr. Brown did not want to spend the money on blueprints until Diamondhead signed.

3. If the folks buying the condos have defaulted on their lots, the bank is not going to finance them to buy a condo.

4. If the value of the "lot" is transferred to the sale of the condo - it is of no real value; it is only on paper. The question here would be, "who holds title to the lot". Neither a bank nor an investor will buy this as a reason to lend money...............remember, these are properties in default. If one of these properties had actual "value" the owner would have sold it.

5. Down payments on properties are held in escrow and can not be used by the builder/developer. There are ways around this scenario that give the developer access to the money.

6. People do not make mortgage payments on property until the property is built, occupancy permits obtained, and the sale can close. Banks today do not loan money on hypothetical future mortgages.

7. The $12 million dollars for the construction of 110 condos and the fun center comes out at about $60 sq. foot. Not a realistic estimate. If a business plan had been done, then there would be a realistic understanding of the cost for the project, the obstacles, the amount of money needed at each phase of the development, the commitment of the investor/proposer, how Diamondhead facilities fit into the plan, etc.

8. Another source (who has had to do several EPA statements for his businesses) told me that it can take over a year to get EPA clearance to begin building.

9. If Diamondhead has done due diligence (my source said, you MUST do due diligence) then Diamondhead understands the potential and the risk associated with this proposal. Due diligence is a written document.

I think the most important fact in all of this is that Diamondhead should be in control. The terms should be Diamondhead's not Mr. Brown's terms. If Mr. Brown walks Diamondhead has lost nothing. If Diamondhead agrees to Mr. Brown's terms.........................we discussed where the liability or potential recovery will point - to Diamondhead.

Vicki Hunsinger

PS In 1996 I was approached to help start up a business. The investors were Craig McCaw (McCaw Cellular - now Cingular Wireless; Cooke Cable - now Comcast) and Bill Gates (you know who he is). Before I agreed to work at this company I wanted to know the amount being funded, where the funds were coming from and where were the funds today! I did personal due diligence before I went to work for these folks - headquarters, organizational structure (who were the other employees and what was their background), business plan, marketing plan, etc. and of course, the money.