The Friendly Market is a large supermarket located in a city in the Southwest. “Friendly’s,” as it is popularly known, has more sales per square foot than any of its competitors because it lives up to its name. The personnel go out of their way to be friendly and helpful. If someone asks for a particular brand-name item and the store does not carry it, the product will be ordered. If enough customers want a particular product, it is added to the regular line. Additionally, the store provides free delivery of groceries for senior citizens, check-cashing privileges for its regular customers, and credit for those who have filled out the necessary application and have been accepted into the “Friendly Credit” group.

The owner, Charles Beavent, believes that his marketing-oriented approach can be successfully used in any area of the country. Therefore, he is thinking about expanding and opening two new stores, one in the northern part of the city and the other in a city located 50 miles east. Locations have been scouted, and a detailed business plan has been drawn up. However, Charles has not approached anyone about providing the necessary capital. He estimates he will need about $3 million to get both stores up and running. Any additional funding can come from the current operation, which generates a cash flow of about $100,000 monthly.

QUESTIONS

1. What would be the benefits of raising the $3 million through a private placement? What would be the benefits of raising the money through a venture capitalist?

2. Of these two approaches, which would be best for Charles? Why?

3. What would you recommend Charles do now? Briefly outline a plan of action he can use to get the financing process started.