Part 2 Venture Adventure by Jager, CEO of New England Wireless

Over the Holidays in ’98, I discovered that venture firms
don’t work from around the 15th of December to the end

of the first week in January, other than the assistants in the

office in New York there wasn’t anyone around. They put in

long hours when they do work, but with long weekends and

numerous vacations they seemed to be around about 20 weeks

out of the last 26 and were seldom working on Friday after

12 noon unless they were putting together a deal.

We’d had our first round of zoning hearings and now we faced
a series of neighborhood meetings, nice little Q and A’s from the

tin foil hat crowd. I’d been through those meetings before and

felt confident we could get through them with only minor bumps

and bruises.

So like my masters in New York, I had some time during the holidays

to think about the last 6 months. What had I learned?

First thing I learned was my 22 million deal was chump change to these guys.

In retrospect they bumped the 19 I quoted to 22 million so they could justify

doing the deal to their investors. Yes, the principals in New York had three

guys they reported to. Those 3 really big guys had financed my smaller guys

with 500 million in cash plus expenses. That 500 million, under the rules in

force in 98 could be leveraged to just over a billion dollars. The going rate at

the time for venture money was a 25-28% return or 250 bucks or more on a
thousand loaned. Venture firms borrow money at market rates or below from
banks, then invest (loan) it at usury level rates. They never touch the principal,

ever!

My guy, Brett the MBA, was 29 years old, his MBA was from
Wharton and he was a small fish at the firm. His boss was 36, a

whiz kid hired away from Morgan Stanley by the really big guys to

run the company. My relationship with Brett was thin, I knew he was

married, had a little kid and his wife was a big deal VP of marketing

with a Fortune 500 company, he did send me a Christmas card.

Didn’t know much about the boss other than his taste in wine and

food was very high end.

Sorry ass Ed and I were the only broadcast deals they had.
Ed had used their money to buy a VHF TV station and it was losing its ass. (Although
his lifestyle wasn’t dented, I mean he lived in Greenwich and had a house in
Sag Harbor.) This was a good thing, because the venture firms that specialize
in broadcasting are filled with frustrated program directors and bean counters.
Our guys could have given a shit.

In my rush to become an owner, I conveniently
compartmentalized the reality that I was going to have to do one of two things,
buy the station in 3 years for a 27% premium, much like buying it on a Visa
with a really big credit limit and usurious rates. Then hopefully finance the
purchase at a reasonable rate for 10 years, probably at bank rate plus 2, meaning
I would have paid around 35% interest over a period of 13 years on this deal, 5.9
million on the original 22 and then another 2 million the refinanced 27.9.
Funny how the reality of those numbers just fade from one’s mind, isn’t it?
Somebody told me a long time ago that when you do a deal with venture groups,
you are really just buying yourself a job with a cool title. But, I didn’t want
to deal with that ugly piece of information. The other scenario was in three
years, we’d have a viable station making a buck or two and the venture guys
would sell it. At that point if we sold it for 30 million, the venture guys
would take back the original 22, plus the 5.9 million in interest and my 11%
would come from the balance of 2.1 million less the brokerage, legal fees and
any other costs of the sale. Kind of a quandary to be in…but I just put my head
down and kept on truckin’! I just didn’t want to think about it. Every once in
a while I’d snap awake at 3am and sweat for an hour or so, but that was ony 3-4
times a week.

Part 3 coming soon to a radio near you.