In the fall of 1988 Greg and I did a “road show”, over two weeks we visited five cities and made presentations to a dozen venture capital firms. After the road show, Greg had three VC’s that were very interested. Two wanted to move right away, Summit Partners in Boston and Battery Ventures in New York. Westwood partners in LA were also interested, but were not as “hot”. Summit really wanted to do a deal before the end of the year. Greg and I flew to Boston and engaged in three days of marathon, 18 hour a day negotiations. Roe Stamps, the founder of Summit, was a shrewd Texan, but luckily I had Greg, and he saved me many times in the negotiations from terms that might have let Summit take control of the company or forced an onerous payback. In the end I think it ended up being a fair deal for both parties. If I had been a crook then the deal might have been considered to my advantage, but I think Roe sized me up and felt I would deliver, and of course he turned out to be right. Working with Roe was Larry Lapard, a partner in the firm, who ended up being on our board of directors representing Summits interest.
The Summit deal was $2.45 million which was a decent size for that time. We would get $1.75 million up front, and Summit has $700 thousand in warrants they could exercise at any time in the next three years at a higher valuation. The stock was a convertible preferred which paid a 7% dividend which could be deferred, but which we never did defer the dividend. This gave Summit preference over the common holders should things go wrong, but behind debt holders (like the bank). The deal funded in February of 1989. We closed the fiscal year in March 1989 at just over $5 million dollars in sales and almost 15% after tax profit.
By the funds going right to the bottom of our balance sheet we were able to expand our bank and receivable credit lines. In addition sales continued to book and we were very profitable.