Rick Brimacomb is the owner of Brimacomb Capital, a venture capital firm that aims to assist with building businesses, versus just financing them.
Born in Minneapolis near Lake Harriet, Brimacomb grew up in an era where life was simpler.
“Our neighborhood had a lot of great people and great families,” Brimacomb recalls.
“The world is different today. It’s changed a lot, and I would argue not for the better, but it is what it is.”
After high school, Brimacomb enrolled at the University of Minnesota in the Twin Cities.
Originally, he planned on majoring in biology and going to medical school, but he ultimately changed his mind and began studying business.
After earning his undergraduate degree (and later an MBA), Brimacomb went into the financial services industry, and has since spent the majority of his career in venture capitalism.
If the term venture capitalism seems vague, Brimacomb assures that the industry itself isn’t highly complex.
“Venture capital revolves around financing and getting resources to grow early-stage companies,” says Brimacomb, who for context has also worked in investment banking and research.
Despite venture capitalism being a relatively straightforward process, there are still several misconceptions the general public, and business owners, have about the process of securing funding.
“I have consulted a number of business owners who want people to invest in their company, but often they look at things myopically,” Brimacomb says, in explaining how entrepreneurs sometimes don’t fully understand how venture capitalism functions, particularly when they initially begin searching for financing.
“They [business owners] are just thinking about their company, and they don’t understand that investors get their money from somewhere. Those investors need to make a profit on their money, and so investors invest with other people’s money under the guise that they have a certain rate of return, because that’s what they promised their original investors.”
Adding to the confusion, sometimes business owners overestimate the valuation of their business.
For example, a business owner might believe that their business is worth $10 million, but an investor might determine that figure is closer to $5 million.
Why is there such a disconnect between business owner and investor?
Well, while a business owner might determine that the valuation of their business is $10 million, a prospective investor may not be able to achieve an ROI (return on investment) at that valuation.
Therefore, the investor may determine that the valuation is instead $5 million, and that’s because they can confidently invest at that number.
“Most of the time the business owner takes this discrepancy personally,” Brimacomb says.
“It’s like calling someone’s kid ugly. Entrepreneurs don’t want someone to knock their business, even though it’s not so much a knock on the business. It’s again more a matter of investors must earn a certain rate of return to justify other people giving their money to them.”
Some business owners know that prudent investors employ this strategy, which is why it also isn’t uncommon for business owners to overvalue their companies in order to drive more interest from investors.
Brimacomb notes that when business owners overvalue their companies, they may receive interest from less sophisticated investors, but that over time the company will suffer because they won’t attract interest from the right types of investors.
“Overvaluing a company isn’t good practice, and it puts business owners in a corner because it turns future investors, who may be a better fit, off from working with them,” Brimacomb adds.
To put things in perspective, Brimacomb says that if the owner of an apartment complex tried charging potential tenants $2,500 per month to rent a unit whose market value was only $1,500 per month, prospective lessees would walk away.
Worse, the perception of the apartment complex owner would be damaged.
Yet, this practice is employed every day in the business and investment world.
“Naïveté as well as ego cause problems like this because business owners are trying to get the best valuation possible, when in reality they should be trying to get the best investor possible; someone who is a good fit and can add value,” Brimacomb explains.
“The valuation should receive far less attention from the business owner because if the company has success, the valuation stuff will take care of itself. In a company that does well, everyone is going to win. In a company that doesn’t do well, no one is going to win.”
At Brimacomb Capital, when looking for potential partnerships, the focus is rarely on working with companies that overvalue their position.
Rather, what makes Brimacomb Capital unique is the way they mine the niches of the business world for undervalued companies.
“I’m also not afraid of going in first [on an investment],” Brimacomb says.
“In fact, I prefer to go in first because I can add the most value and have the most impact.”
Considering that most investors prefer to invest their capital alongside several other partners, or once a company has already proven themselves, it should come as no surprise that Brimacomb has made a career out of capitalizing on opportunities that others have dismissed.
“Another reason I’m willing to go in first is because I want to add value where other investors might want to just be an observer or be more passive,” Brimacomb says, noting the difference in how some venture capital firms only want to finance projects and hope that their investment yields a profit, as opposed to working directly with their clients to produce a positive output.
“I want to find something that maybe needs some improvement and then work on that with the business owner.”
To be clear, Brimacomb isn’t exerting more effort simply because he’s a nice guy.
“By helping the business owner, I am also giving myself the opportunity to buy that asset or invest at a lower price,” he says.
Brimacomb’s hands-on approach is something not many of his competitors would mimic, but again, in order to achieve a more optimal outcome, an investor must be willing to be innovative.
“The economics of that equation [active investor role] make more sense than being the fifteenth investor in a deal after everything has been smoothed out,” Brimacomb says.
“It’s not that people can’t make money with that [collective investment] strategy. I just think it’s harder because the prices go up that way.”
As for what Brimacomb does to aid his investments, that varies depending on the client (confidentiality agreements preclude him from going into detail on this matter), but at the core of every partnership is a close relationship that transcends financial transactions and bleeds into the human element of venture capitalism.
“Yes, I am an investor, but I’m also a comrade who is working to support entrepreneurs when things are tough, or when they’re encountering unforeseen challenges,” Brimacomb says.
“But I’m doing a lot more than just writing a check and sitting on the sidelines.”
Humble enough to acknowledge that his investment strategy doesn’t align with every business owner or entrepreneur who is seeking financing, Brimacomb is unbothered by deals that don’t go his way, and that’s fine, because enough people will find their way to working with him.
“I’m not saying I’m better than anybody else, but this is my approach, and for the people who like that, I bring a lot of value when it comes to securing financing and working to ensure that investment turns a profit.” QS
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