In July of 1999, the Board of Directors of Bell Geospace asked me if I would be willing to take over at President and CEO. This was a hard decision. The guy I would be replacing was (and is) a friend of mine. And the Company was in a tight spot.
In spite of raising over $20 million in equity and $14 million in debt we were quickly running out of cash. We had to close several sales or an additional round of funding to make the company work.
Reluctantly, I said yes.
The Board put me into the role and I immediately had to hire a CFO. I ended up hiring a fellow who became a very close friend (battle scars). I kept telling him we had plenty of cash (well over a million dollars) but he never really asked how much we were spending. Alas, we were spending WAY too much.
So first we tried to raise more money. We had a term sheet from a young and up and coming Private Equity firm based in Lime Rock, CT. The problem was the "pre-money" valuation (that is, what share price they were willing to pay for our stock) was $12 million. Yipes! Our last "post-money" (after our last round of funding) valuation was $45 million. That was quite a "down round". None of the current investors were willing to see such dilution.
So we focused on sales. We really had a pretty spectacular growth rate - in 1998 we sold only about $200k worth of data, and in 1999 we sold over $2 million! But our burn rate (cash out minus cash in) was about $2.5 million a month. Yipes!
My CFO told me that we had to get relief from our debt obligations, or we would be in violation of our loan covenants. (you had to keep a certain amount of cash or the loan could be called. There were many of these types of rules we had to follow)
Our biggest debtor (other than the loan with Third Coast Capital) was with Lockheed Martin, the manufacturer of the instrument we were using to collect our data. We had a payment due in October, and if we paid it, all our loans would be called.
It seemed like it would be a simple thing to go to Lockheed and ask that we reschedule payments. (there is a lot of history that I am leaving out here. The instrument we had was delivered very late, which meant that we missed the oil price peak, which meant that oil companies were cutting back on exploration, which meant that nobody wanted to buy our data. For want of a nail...)
But nothing with a large government contractor is ever simple.
This division of Lockheed we were dealing with (Lockheed Martin Federal Systems - they also made submarines) had never had a private client before. They were so naive that when it was obvious that they were not going to make the contracted date for delivery of one of our instruments, they told us that the price was going up (!!). We pointed out that in the contract, if they missed delivery, they had to pay a penalty. They said it never worked that way with the government. (I guess!)
So my CFO and I showed up in Manassas, Virginia on September 30, 1999. We had a meeting arranged with the head of the division, her finance guy, and a bunch of other people who didn't talk.
The meeting did not start off too well. She started telling us how they needed our cash in order to make their yearly bonus. I explained that we would not be able to pay them, and we were looking for a payment plan where we could push the payment out into 2000. She was not eager to do that.
Every time I explained that we could not pay, she explained that they needed our cash so they could get their bonus. I then brought up the fact that we were in this predicament because of their inability to deliver the instrument on time. She apologized, and then told me that she needed our cash to make their bonus.
I said that if we did not get relief, we would have to file for bankruptcy. She said that didn't matter to her, as long as she got her cash.
This meeting lasted pretty long into the evening. I was getting frustrated, and I could tell she was also.
I finally said, if you do not give me a payment plan, I am going to file for bankruptcy in the morning. She said "Well, you have to do what you have to do, and so do I. I need that cash"
So I got up to leave and said we were filing as soon as the courts opened. She said OK, and then turned to one of her minions and asked, "What does "filing for bankruptcy" mean, anyway?"
I was sort of flabbergasted. I said:
"It means you won't be getting your bonus"
We filed in the morning.
In spite of raising over $20 million in equity and $14 million in debt we were quickly running out of cash. We had to close several sales or an additional round of funding to make the company work.
Reluctantly, I said yes.
The Board put me into the role and I immediately had to hire a CFO. I ended up hiring a fellow who became a very close friend (battle scars). I kept telling him we had plenty of cash (well over a million dollars) but he never really asked how much we were spending. Alas, we were spending WAY too much.
So first we tried to raise more money. We had a term sheet from a young and up and coming Private Equity firm based in Lime Rock, CT. The problem was the "pre-money" valuation (that is, what share price they were willing to pay for our stock) was $12 million. Yipes! Our last "post-money" (after our last round of funding) valuation was $45 million. That was quite a "down round". None of the current investors were willing to see such dilution.
So we focused on sales. We really had a pretty spectacular growth rate - in 1998 we sold only about $200k worth of data, and in 1999 we sold over $2 million! But our burn rate (cash out minus cash in) was about $2.5 million a month. Yipes!
My CFO told me that we had to get relief from our debt obligations, or we would be in violation of our loan covenants. (you had to keep a certain amount of cash or the loan could be called. There were many of these types of rules we had to follow)
Our biggest debtor (other than the loan with Third Coast Capital) was with Lockheed Martin, the manufacturer of the instrument we were using to collect our data. We had a payment due in October, and if we paid it, all our loans would be called.
It seemed like it would be a simple thing to go to Lockheed and ask that we reschedule payments. (there is a lot of history that I am leaving out here. The instrument we had was delivered very late, which meant that we missed the oil price peak, which meant that oil companies were cutting back on exploration, which meant that nobody wanted to buy our data. For want of a nail...)
But nothing with a large government contractor is ever simple.
This division of Lockheed we were dealing with (Lockheed Martin Federal Systems - they also made submarines) had never had a private client before. They were so naive that when it was obvious that they were not going to make the contracted date for delivery of one of our instruments, they told us that the price was going up (!!). We pointed out that in the contract, if they missed delivery, they had to pay a penalty. They said it never worked that way with the government. (I guess!)
So my CFO and I showed up in Manassas, Virginia on September 30, 1999. We had a meeting arranged with the head of the division, her finance guy, and a bunch of other people who didn't talk.
The meeting did not start off too well. She started telling us how they needed our cash in order to make their yearly bonus. I explained that we would not be able to pay them, and we were looking for a payment plan where we could push the payment out into 2000. She was not eager to do that.
Every time I explained that we could not pay, she explained that they needed our cash so they could get their bonus. I then brought up the fact that we were in this predicament because of their inability to deliver the instrument on time. She apologized, and then told me that she needed our cash to make their bonus.
I said that if we did not get relief, we would have to file for bankruptcy. She said that didn't matter to her, as long as she got her cash.
This meeting lasted pretty long into the evening. I was getting frustrated, and I could tell she was also.
I finally said, if you do not give me a payment plan, I am going to file for bankruptcy in the morning. She said "Well, you have to do what you have to do, and so do I. I need that cash"
So I got up to leave and said we were filing as soon as the courts opened. She said OK, and then turned to one of her minions and asked, "What does "filing for bankruptcy" mean, anyway?"
I was sort of flabbergasted. I said:
"It means you won't be getting your bonus"
We filed in the morning.
No comments:
Post a Comment