In Black America; Speculative Ventures with Alan Josselyn

So From the Longhorn Radio Network, the University of Texas at Austin, this is In Black America. We look at companies every day that are in sales ranges between $100,000 and $1,000,000 annual sales.

But if they would have $1,000,000 to $5,000,000 in capital provided to them, they could easily break through and get in the categories becoming a $20,000 to $50,000,000 company. So that capital is the hardest thing to get. We're sitting in the market where we're providing one of the roughest things to do is to provide capital for ventures. And our investors bring us their money saying, you know, make the best investment you can for. Get us the largest return possible for the least amount of dollars invested. So that's why we bring a public equity work, bring an adventure capital approach to the public equity market and we're treating each investor like they were a major venture capital firm that gave the same percentage of ownership if they were providing all the money, dollar for dollar. Alan Jocelyn, president of AR Jocelyn Consultants Inc. In today's business climate, more and more companies are turning to a new breed of investment consulting firms that cater to speculative ventures, shifting through the hundreds of calls that come in weekly. Alan typically seeks out small to middle high tech and manufacturing companies in the two to four million dollar sales range.

He seeks companies that are looking for several million dollars of financing to break out those that could do 50 million dollars in annual sales. According to Alan, his firm is like an old-fashioned underwriting firm. They will hold your hand from start-up through the point that they are operational, making sure they don't get blindsided. I'm John L. Hanson, Jr. and welcome to another edition of In Black America. This week, speculative ventures with Alan Jocelyn, president of AR Jocelyn Consulting Inc. In Black America. We look at proximately 50 to 100 deals a week that come to us, people needing money for different ventures. Now we do a screening process and we know which industries we like, we know which type of people that we work best with. So, when we find one that has the right industry, that has the right segment of the market

that they've identified, that we know the consumers will yield major percentages of dollars, we then take the next step, and then we'll look at the personnel. There's three parts to any business venture. You've got the entrepreneur, okay, and if he's good, and even an a-rated entrepreneur, then if it's an a-rated venture, then at the markets right in the industry's right meaning that's the venture, and the timing's right, then we want to seriously look at it. If the entrepreneur's right, then the only third part is the capital. So, if you have all three elements available to you, then you can pretty much manage anything that's going to develop in the venture. Although financial markets claim the credit crunch is over, small businesses still can get a break. African-American business owners continue to scrabble for capital from family and friends. However, African-American firms can find other sources of funding. Sure, tapping the financial market is extremely tough, but tenacity, a well-managed company,

and a great product or service can help open doors. Mining for capital is tricky, especially without a well-thought-out business plan, and a clear understanding of how the capital markets really work. Alan Johnson has found a niche in speculative ventures. This company catered to companies that need capital, but cannot get bank financing nor organize a public offering. After being personally bankrupted twice, once living out of his car, Alan now lives by the model, give me poverty or wealth, but nothing in the middle. Recently I spoke with Alan Johnson regarding his company and career. I did an entertainment guide was in college called What's Around Columbus, and it just identified for people coming to Columbus, all the different restaurants to see, all the different sites. Everything of entertainment value, someone we want to see, we just identified an household advertising and did it with a business partner who went to printing shop to White Moody, a long-time friend.

He'd enjoyed me in this, and that was my first business venture. And how did you particularly start their business? I went to him and told him my idea about doing an entertainment guide, and he said, let's do it. He said, I'll do the printing, and you go sell the advertising, and we'll put it together and go forward. Any capital that was needed? Oh, and this very first one, maybe a couple thousand dollars. But we both, I did the labor for free, and he'd do it all the printing and typesetting, and that was clear back in 1981, so in those days it didn't require much capital to get something launched. So that was my first venture that year. I made quite a bit of money and took four vacations, and it was a good venture. You also launched a chain of clothing stores called Lake Road Men's Wear. I correct, correct. I was in college. I worked for different venture capital firms and legal firms in the 80s in the Dallas area, and while I was working for my new business plans, feasibility studies, market forecast and industry analysis, the big four documents you need to get it, you know, a major organization and a major company started.

And I was doing this, and I decided one time to do one for myself. I started a clothing store. I got a major bank to become my partner. Started in the Dallas, Apparel, Mart, and Sold-Off Distributorships and Franchises. And then I started opening up, you know, the main store, and started working with others. And we were growing almost at 100% a month, and a lot of short term paper. And during that year, I had a couple of things happen in 1985, the total market just literally crashed. People stopped buying suits and was mainly in the men's business, and we couldn't get long-term paper, and we just had no financing, no income revenue stream coming in to handle the growth. And to handle the notes coming due. And so the bank decided not to give me long-term paper, and when they did that, I couldn't find financing everywhere, so I turned the keys back into them and told them that it was a nice doing business with them.

When one attempts to start a new business, what should one look at first? Of course, you look at the idea, but the feasibility of that idea and actually being able to generate enough cash flow to keep that business afloat. Right. The first thing I can tell you, if any time anyone would have an idea, go check the FIC codes and find out what industry they're in for them. The US government, they have a publication, the US government outlook, or the US industrial outlook for each year, like they may have the 1993 out now. And it'll tell you in every industry that there's money spent and that you should even look at going into a business venture for, it'll tell you that dollars spent by the consumer and which consumer groups are buying. And if that industry isn't a hundred million dollar industry, no one should ever, ever go into that industry, okay? So that's the first thing I have to say. Make sure the industry will supply the dollars needed to go forward. And if the industry will not then do not pursue it.

If you can't start up and if you're looking to make a certain dollar amount every year, if the industry won't make room for you, don't pursue that industry. And when one goes into business, should they have an idea as you stated of how much money they want to make or how much money there is the possibility to be made. Right. One thing they should do is read the entrepreneur magazine and they have industry outlooks. They also have that. But they'll break it down to companies you can start. They can break it down to profit margins. They'll have in their industry standards for basically how much capital it takes to get started, how much profit each industry makes. So it's important to know peer industry standards on what it will cost to get into the industry, what it will cost to make one dollar revenue and what it will cost to stay in that industry year after year and what your profit margins will be. You know, you might have a 10 to 12 percent profit margin in one industry. If in that industry, if you're going to, if you're playing on going in and discounting 10 or 12 percent to get the business, you're going to have zero profits that you're working

for free. So it's very important for them to look at what profit margins are in each industry because all the industries are different. So depending on what they want to go into, it's good for them to study and to read about the industry, about the profit margins, find consultants in that industry that can tell them what's the best path to take before they start spending money. Obviously you must have read some of those trade magazines since I assumed that you hadn't had any retail experience or wholesale experience in menswear. What made you believe that menswear was your niche at that time? There was an open opportunity. I fell into a mistake where I had an opportunity to present itself and looked good and I did a business plan, did a feasibility study and it really looked good. So I went into that, not knowing that the industry was getting ready for a major downturn. And I ramped up the banks, everyone that was supposed to be experts and I ended up leaving also that this was a good investment to go into.

And I also did. So we went into that industry and we pursued it. We immediately found out six months to a year later that definitely wrong decision. So even the big people that have money can make wrong decisions. The ones who are handing out money and making loans and making equity financing available, they can give you some wrong direction also. So it's good to study and it's good to look at the industry and make sure that you know for sure you want to be in that industry and that you can afford to stay there. What's the downside other than the financial embarrassment of losing a business? Well, I could talk a lot about the downside but I think there was very little downside because I would have to say that the experience I gained from it, the experience was phenomenal. And the dealing with major banks, dealing with major equity players, getting the experience of learning the lessons of why did it fail? Why did it not succeed?

I had all the right formulas they teaching college. I had everything that someone would want to know about a business venture. I had everything available to me. Why did it fail? Why did it, what happened there? What went wrong? So I made a study of, you know, I made myself a student of business, you know, from taking an idea from conception through commercialization, I wanted to know what the critical path was and what went wrong. So I started reading books and I started, I'm really going and looking in libraries for books where I found very few books about this but there's a couple books I could recommend once the entrepreneurial manual published by Chilton is written by Mr. White. It's like a Bible to me now. I read it constantly and it identifies why businesses fail. What are things that happen to go wrong? There's also another one used at SMU University called the Entrepreneur Master Planning Manual. Both of these books have been out of print. Now they've recently been bought, brought back into print. So I started studying and really digging and looking for what went wrong and I started, I learned lessons from that and that started me digging farther into doing venture capital

type of deals and identifying problem areas when I then I went to the next stage of working with venture capital companies is looking at what went wrong for each venture and how to get them out of it. So as a big learning experience, a great learning experience for me. How did you happen to become one of the first distributors to set up caller ID in this country? I was looking for a new deal, I was looking for a new technology. I was looking for the new venture. I felt like I learned my lessons and I felt like I wanted to do another venture. I set back, I studied, I waited, I hung out a couple years, got my college degree and I saw this new technology come out called ISDN, it's all the technology that can be carried across telephone lines and I heard that there was a few companies working on developing the caller ID and so I did some research and found all four companies developing it and beginning to manufacture it.

So I flew and went to see each one up and I found some venture capital, structured distributors ship contracts and structured distribution contracts and brought those back home, set up a company and began selling off distributorships and began one of the largest retailing operations of selling the caller ID. I felt like it was a phenomenal industry and it was one that was right to go into. For those who have a limited understanding of economics, give us a definition of venture capital. Venture capital is, could be equity or debt financing for a business venture that is not bankable or financeable by traditional institutions. I bank savings and loans. Exactly. Credit unions. Right. Why did you believe that your current business will be successful as a venture capital firm? Because I was working with Sheerson Lehman Brothers and I was working with many venture

capital firms. I found out that the biggest market gap right now for profits and the biggest need for a service right now is finding financing for high-tech knowledge type of operations. Traditional financing isn't working? No. There's very few of these that are getting any type of financing from traditional sources. Is that due to our past financial walls in the banking industry? Yes, it's due to a lot of the banks are scared because they kind of relate them to real estate type of loans. They also feel that they really, they're unsure. They want safe stuff. They want, you know, if they can get money from the feds, the treasury at three to four percent and loan it out at, you know, seven to eight percent and take no risk and get four percent returns, you know, that's why no one's loaning any money anymore. They don't want to do any type of small business loans. They don't want the risk. They're going to make too much money now off of the government. So why deal with a business, a small business? Okay, and your venture capital company looks at what type industries?

We look at strictly, we try to look at high tech industries. We also look at some industries that have a little bit too much speculation because, you know, we look for things where there's high profit margins. We look for industries where there's big profit margins and there's large profits for our investors. Give us a percentage when you talk, when you speak of high profit margins. Oh, we easily like things that have profit margins from 20 percent up to 360 to 70 percent. Okay. And usually your high tech firms can offer that. Why particularly high tech over another particular industry? Well, if you look at the big areas of profit in the US, your retailing is pretty much already, that pie has already been divided. Okay. And if you look at your medical industry, the gap you have to go over to the barrier in that industry is so large, it's incredible, the amount of dollars needed.

If you look at the high tech industry though, the barrier for dollars might only be one to ten million dollars in each venture. And they need help and there's an open door there. And their profit margins, you know, they're building stuff off of plastic and wires. And it's very inexpensive for them to manufacture, for example, like memory boards. They might have six cents in a memory board that might sell for six or eight dollars. Okay. There are two sides to the venture capital matrix, of course, finding the companies to invest in, but also finding the investors to have the money to invest in the companies. Right. Take step one first. Finding the companies. Right. Well, we do not advertise, but we look at approximately 50 to 100 deals a week that come to us, people needing money for different ventures. And we do a screening process and we know which industries we like. We know which type of people that we work best with.

And so when we find one that has the right industry, that has the right segment of the market that they've identified, that we know the consumers will yield, you know, major percentages of dollars, we then take the next step, and then we'll look at the personnel. You know, there's three parts to any business venture. You've got the entrepreneur, okay, and if he's good, and even an A-rated entrepreneur than an A-rated venture, then at the market's right and the industry's right, meaning that's the venture, and the timing's right, then we want to seriously look at it. And if the entrepreneur's right, then the only third part is the capital. So if you have all three elements available to you, then you can pretty much manage anything that's going to develop in the venture. Okay, and the B-part to that equation of finding the investors. Are the investors out there willing to speculate? Well, today you have one of the largest group of investors out there that are looking for the right opportunity.

They're not wanting to sit and as a saying goes, watch paint dry. They're looking for a five to six to seven percent return. They're willing to take five to ten percent of what we call their mad money. That's a speculative money. They're willing to take and put that on a business venture saying go to the best job you can. Take our money and invest it. Have you run across companies who are doing pretty well, but with an infusion of capital and possibly the purchase of some new technology could do even better? Yes, we look at companies every day that are in sales ranges between, they're doing between $100,000 and a million dollars in annual sales. But if they would have a million to five million in capital provided to them, they could easily break through and get in the categories becoming a 20 to 50 million dollar company. So that capital is the hardest thing to get. After we're sitting in the market where we're providing one of the roughest things to do is to provide capital for ventures.

And our investors bring us their money saying, you know, make the best investment you can for. Get us the largest return possible for the least amount of dollars invested. So that's why we bring a public equity and we're bringing a venture capital approach to the public equity market and we're treating each investor like they were a major venture capital firm. And the same percentage of ownership if they were providing all the money dollar for dollar. That was my next question. Besides having access to the capital, do you all become a part of the ownership or management structure of that particular firm that you all invest in? Well, many of them can't afford to pay for our services when we get into them. They're in a situation though, if we don't provide a capital immediately, they might not survive the economy. So we will take stock for services rendered, so we will become owners also, yes. And that will give you a little bit more impetus to become more interested in the day-to-day operations of that company.

Exactly. When we say we take a venture capital approach to the public equity market, a lot of stock brokers will just sell their clients' investments. We get involved. You know, we do resourcing and sourcing for the company. We look at what they need in the area, personnel, management, what they need in the area of capital, what their market is doing to them, and seeing if we can't get them a better focus. We bring them marketing, expertise, and consultants, and so we work with them like a venture capital with an venture management, venture manager would one step at a time. Being based here in Austin, Texas, our majority of the companies in the southwest or southern region, or is there, say, national effort on U.S. park? We're looking nationally. We're looking across the nation. Right now, we have four companies under contract to take public. And we're doing a lot in California. We're doing a lot in the south here. We can't disclose or we can't talk openly about companies. We have under contract to take public. But we do have a nationwide effort, and we've been looking internationally at a few deals.

Are you finding entrepreneurs understanding the business of money besides the business that they're currently occupied in? I find very few entrepreneurs realize that how to get money, if you have them spend time to understand how to get venture capital, very few have them understand the industry books, like the corporate finance, blue book, and the corporate finance, source book, very few of them know even those industry manuals exist, very few of them, and a lot of them know how to put a business plan together, but they seem to stop there. They don't seem to go out and get the consulting about which business intermediary to use to go and secure their financing. And that, I think, 90 percent of their efforts are spent with people who cannot deliver their money. And that's one of the biggest problems I see in the industry. They get their industry right. They get their business plan. They get everything ready, and they've got so much money to work with to get their venture launched.

But they spend months, even years with people trying to get them funding secured. And the person usually has an inability to secure funding. Having an interest myself in economics, our schools are not really teaching entrepreneurship per se. Do you concur with that? I do. I've been asked twice by Harvard to come and speak to them and tell them how I make my money. Graduating from a small Baptist school, they wonder how some person out there can be at 31 years old and making the money I do off the market and making ventures very successful. And they want to come and speak to them and educate them on how I was doing it. And I did not learn that much in college. I could summarize what I've learned in 12 books. I've learned more in 12 books than I did my whole four years in college. And these are books I went and found myself and read. So they don't teach entrepreneurship, and they don't teach how to go out and get capital to get a business venture capitalized.

What they teach is business management, business finance, accounting, but when it comes down to acquisition of assets, acquiring capital to further operations, very little is very low time of spend on that. Being in a speculative business, do you see the economy changing for the better? I do. I see this what's happened right now with the banks and the banking sticking to just basically government secure investments. I see the economy starting to turn. I see where there will be. I've projected that there will be as many as 10,000 plus firms like myself open up in the next four to five years to where without the, if you don't have the banking and you don't have the government financing available, you have to turn to the private industry to the private sector. And I see a lot of the big stock brokers moving out and opening up their own small investment banking firms like the old-fashioned underwriters.

So I think that the industry is going to take a change where you're going to see a lot more smaller old-fashioned underwriting firms come back, and you're going to see the entrepreneurs giving up a much larger piece to the investors for taking the risks. So I see the industry changing plus what Clinton is proposing on this investment tax credits for businesses getting finance under 10 million. Because right now in America, we're sitting on one of the greatest technology booms in America like Patriot Scientific that does the ground-penetrating radar. You know, we've never been able to look down into a ground or through a steel building or through, you know, say up to maybe 20,000, 30,000 feet. We've never had the CD disks that will store so much memory, you can't even fathom it. I mean, we're sitting on the greatest technology boom that we've ever seen and it's America, we have it, this technology is not in Japan, and we're sitting on it, and these ventures are being funded. And we're keeping it at home this time like rich wood industries out of California. They're sitting on a technology on deburring and polishing of metal products working with

GE Caterpillar, Pratt Whitney. This is technology that Japan, they're trying to copy us now, but they're nowhere close to us. So we're sitting on one of the greatest advancements in America right now in the high-tech industry. And I think that this, I think the economy is turning up. But one belief I also have is that in America, I don't think we're going to ever see the whole economy as a sector come back and boom again. I think we've gone into a global type of economy and what you're going to have is different industries and different sectors in the industries really surge ahead, but you won't see a full-blown economic surge forward. Colin, before we run out of time, are there any governing bodies or licenses for the venture capital industry? In the venture capital industry, no. But in the public equity market, there are licenses required, a Series 7, a 63 for most investment bankers and stock brokers.

There's business intermediaries that kind of operate in the middle where they don't require licenses, but we do have seven and 63's here. I do have a senior operations person that has a 24, and recently we've gone down and we've found with the state of Texas to open up our own separate broker dealer or before I went to franchise of a broker dealer. How does one become comfortable with a venture capital company if one wants to invest? Well, like with us, they would call us up and they would speak to one of our brokers and would totally educate them on our approach to the industry and how we do business because we do business differently than most investment banking firms and most venture capital firms. We would send them out brochures and we would give them a chance to read about us, and then we would tell them to start off with us not to make a large investment, make a small investment, and then we would go forward one step at a time and we would see what would develop and we would make sure that they would have the same investment discipline that we would, meaning invest in five of our companies we're bringing from private and taking

them public, have the investment discipline to hold for five to seven years, and enjoy the capital and enjoy the position they're getting into at first and getting into something that we believe is a good investment. Is there a monetary goal plus and acquisition goal that you all have set for yourself? We're looking to fund this next year. We're not really aggressive, we're sitting on companies that we believe in and we want to grow with. We're looking for between 15 and 50 million worth of funding to go this next year, out our doors. Alan Jocelyn, President of AR Jocelyn Consultants Inc. If you have a question or comment or suggestions asked your future in Black America programs, write us. Views and opinions expressed on this program are not necessarily those of this station or the University of Texas at Austin, until we have the opportunity again for a production assistant, Joaquin Rostin, and IBA's technical producer, Cliff Hoggrove.

I'm John L. Hanson, Jr. Please join us again next week. Cassette copies of this program are available and may be purchased by writing in Black America cassettes, Longhorn Radio Network, Communication Building B, UT Austin, Austin, Texas, 78712. From the Center for Telecommunication Services, the University of Texas at Austin, this is the Longhorn Radio Network. I'm John L. Hanson, Jr. Join me this week on in Black America. You have one of the largest group of investors out there that are looking for the right

opportunity. They're not wanting to sit and as a saying goes watch paint dry. I'm looking for a five to six to seven percent return. Back at Adventures with Alan Jocelyn this week on in Black America.