We all know that interest rates are incredibly low. The three month Libor continues around 30 bps., an extremely low level designed to spur growth in the economy. Yet, other than asset-based loans priced at L+200 to 300, loans to middle-market companies continue to be expensive, and have not declined nearly in proportion to the decrease in overall interest rates. In fact, for many financings, the weighted average cost of capital is in the 8.0 – 9.0 percent range, rates much higher than would be expected compared to just about any index.

Add to this the fact that middle-market loan volume actually decreased substantially in the fourth quarter of 2011. As reported by S&P LCD, leverage loan volume declined from an average of $4.8 billion per quarter in the first...

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So you finally find this great acquisition – one of your targeted industries, consistent performance, great prospects and strong management team. Oh yeah, it does have a couple of blemishes – some customer concentration, for one, but you’re comfortable with that. What nags at you are the two owners who started the company and are very active in the day to day management of the company. During the acquisition process they continued to state that, despite making a lot of money off the sale, they want to stay active and grow the business. You think you believe them but you’re just not sure because if they decide to go fishing instead of to work…

And then it hits you – let’s get the owners to take back some paper! Simple, or so you thought.

The first step ...

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When gambling on high-risk startups, the more bets you place the better, right? Maybe not.

There is an unspoken discussion going on in Silicon Valley now about the value of “Portfolio” versus “Persistence,” especially among people who have never started a company. The claim is that you can improve the odds of a Facebook-like outcome by jumping from company to company until one hits, building a portfolio of startups (and stock options). I’ve even heard people scheme to switch startups every one or two years, ready to abandon the ship the moment the rain starts.

The alternative is to stick it out and persist through the seeming insurmountable difficulties of building any young company. I think persistence cannot be overrated. But it doesn’t seem to be in vogue.
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Last week I had the privilege of meeting with the senior leadership of one of the Federal Reserve Banks. For close to three hours we discussed the middle-market financing environment and the ramifications for smaller companies. Not only was it an incredible opportunity to interact with the people charged with overseeing monetary policy, it also gave me a chance to look back on the last few years and see a few trends more clearly. 

We started the meeting by detailing the types of institutions providing middle-market financing today and the various types of lending structures they offer. What was quickly evident is that lending in the middle market is currently dominated by non-bank capital sources. 

Certainly for companies with...

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I never met a great entrepreneur who was afraid of failure. Or who didn’t take over-sized risks to win big. This is why many get fired.

I spent the first 10 years of my career at A.T. Kearney, a long way from the risk taking that is Silicon Valley. Kearney, at 85, is one of the oldest consulting firms in the world. It is a tight partnership and people are rarely let go. Employees grow and develop, and some leave to become industry executives. But part of the culture is that managers shy away from firing colleagues.

I almost got fired a few times. And I probably would have been a better entrepreneur if I had. Except for some great clients, who loved my maverick nature, and a great friend and mentor, Bob Duffy, who is still at the firm and has been there since I was in kin...

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