Viewpoint

Dr. Carl-Mikael Wilhelmsson

Dr. Carl-Mikael Wilhelmsson first joined the toy industry working for Lundby, to lead the worldwide expansion of its dolls houses, and later entered the fashion doll market with Petra. He went on to roles heading up Nintendo in Eastern Europe and Wild Planet Europe, also becoming a shareholder of several US toy companies. He then ventured into the world of mergers and acquisitions (M&A) and, following his ‘official’ retirement this year, is now participating in various global financing projects.

Financing the growth of a successful toy company

Banks of today are too slow for the entrepreneurial world, writes Dr. Carl-Mikael Wilhelmsson, who explains more about private company growth investment achieved through private investors - and how this can work for toy companies.

The biggest lesson I have learnt throughout my entrepreneurial business life is that ‘cash is king’. I still vividly recall the financial challenges we faced when we developed hit toys such as the AirWare or Phlat Ball. This article is intended to benefit members of the toy and entertainment industry from a financial perspective. The financial industry often has difficulty understanding the benefits and pitfalls of our industry, because it is unpredictable. It has to be, because we are dealing with creativity. Nevertheless, there are certain parameters that any company seeking financing support needs to adhere to – even an unpredictable toy company. These truths can sometimes be hard to accept, but are a reality in the world of finance:

• Just because you have a new toy, or toy line that will ‘disrupt the marketplace’ does not mean that the financial community will understand why.

• Financial investors are often driven by greed, and will be looking for a surplus ROI on anything they invest in.

• VC companies are always looking at an excessive ROI, to fund other lossmaking investments on their side.

• There is a lot of capital out there, but you need to have a successful track record and ‘look the part’ to gain access. If it’s your first venture; it’s savings and family & friends, in that order.

• Equity financing is not always the best route. Mezzanine is a better financial solution when you want to maintain control of your company.

• I have rarely experienced more ‘hot air’ than reading a toy company's balance sheet...

• From an M&A perspective, toy & entertainment companies have a tendency to vastly over-value future earnings (from that perspective, industrial company valuations are much more attractive).

• M&A is a conveyor belt of opportunities and owners have to learn when it is wiser to sell than to foster one's own ego. (On that topic, I can refer to a well-known toy company that we arranged to be offered a one-time sales acquisition price, because the timing was right, but they declined. The following year they were not even worth half of the original valuation…).

• The most used company evaluation tool is the DCF model (see www. pitchbook.com/blog/howdiscounted-cashflow-analysisworks). It has its flaws, but overall, it describes and evaluates a company and its future pretty well.

I advise companies under the wing of the Paris Chamber of Commerce and am also on its selection committee for membership companies seeking funding. On a recent business trip to Paris, every company I spoke to was complaining about the difficulties and the timeconsuming effort required to raise capital for their various projects. It didn’t matter if it was the first or second round of financing.

I am currently working with a group of high-net individuals in Switzerland, Germany and Austria, who are looking for serious investment objects to offset their yearly surplus of cash flow that they make through their own successful companies. We provide them with an ongoing investment vehicle on a yearly basis. Regardless of what type of capital a private company is seeking - be it seed, equity or mezzanine - we carry out a predue diligence with each of them and then offer a bespoke financing solution, if we deem their business venture is worthy of such an investment.

Banks of today are too slow for the entrepreneurial world; to prove my point, in the UK, 60% of all private company growth investment is done through private investors, rather than banks. Our speciality knowledge area is mezzanine financing, where we have developed a model that gives long-term financing to moderate fixed interest rates.

For this model, we have one criterion that is a deal breaker if not provided. Each candidate has to provide proof of capital of 10% of the investment they are seeking. For example, if they are seeking one million, they have to provide proof of capital of 100.000 etc. We don’t go below a million, because the work involved for us is as time consuming for one million as for 100 million.

This proof of capital is to ensure that any client is putting their money where their mouth is. We have all at one time invested our own personal cash and succeeded, and we are looking for the same type of entrepreneurial individuals. We will not invest, or provide financing for ‘blue sky’ projects, only the ones we believe are serious and have a real future. If your business has what it takes, we'll make a first assessment of your needs and assessment and let you know if we are interested in pursuing it.

Dr. Carl-Mikael Wilhelmsson can be contacted at wilhelmsson@posteo.de.