Letter reprinted with permission from The MountainEAR,
To the Editor:
Club Motorsports Inc., developers of a proposed
250-acre racetrack facility in
In actual fact, the optimistic financial assumptions
that CMI is currently circulating to prospective investors state that at best,
within the next five years, CMI expects to generate only 20 to 25 seasonal
jobs for local
According to CMI’s financial
assumptions, its CEO Stephan Condodemetraky plans to
pay himself $240,000 per year, more than ten times more than the average
At the recently built BeaveRun
As a professional private equity investor who has reviewed hundreds of startup business plans, I feel qualified to provide an evaluation of CMI’s proposed financial model. As part of my due diligence, I talked with some veteran racetrack participants who had also reviewed CMI’s business plan.
These racetrack veterans and I agree that CMI’s inexperienced management team has developed an unrealistic financial model based on many incorrect assumptions, and feel that CMI is likely either to: 1) fail to raise sufficient capital to complete construction of its $14 million racetrack; or 2) be forced to operate the business at a significant annual loss and go out of business within 3-5 years.
Simply put, CMI’s proposed racetrack venture is an ill conceived business concept. It is unlikely CMI could successfully raise capital from a professional private equity investment firm. CMI’s first investment bank, Arete Capital, was unable to raise the necessary capital and is no longer working with CMI. Arete and CMI are now embroiled in a lawsuit fight. Altogether, CMI has been trying to raise $14 million via equity and membership sales for almost 12 months and has to date raised only 25% of the necessary capital. CMI still needs to raise another $10.4 million to achieve its minimum racetrack objectives.
One possible reason for CMI’s lack of fundraising success is the proposed valuation of $15 million as today’s value of CMI’s racetrack business concept. As a point of comparison, the average valuation for software and biotechnology startups which raised private equity during 2000 to 2003 was just over $1 million.
Another important concern that any professional investor would have is that none of CMI’s management team appears to have any prior experience building, marketing or operating a racetrack.
CMI’s Condodemetraky is an avid entrepreneur who seven years ago grew a small consulting firm up to six employees. This one business success, however, is outweighed by the disappointing results of Condodemetraky’s more recent three entrepreneurial endeavors. Condodemetraky’s last company, Online Environs, was liquidated in September 2002 with net liabilities of $1.9 million, resulting in a $5.1 million investment loss for its primary investor (Jordan Industries).
CMI’s business model is based largely upon the company’s ability to sell 1500 memberships at $15,000 apiece to raise enough money to achieve its ambitious goals. However, as racing industry expert Lou Modestino pointed out in a recent New England Motorsports North column, “[CMI] will be lucky to get 500 members. The concept is very expensive and only appeals to an upscale group who can afford the expensive race/street cars”.
In its business plan, CMI projected selling 500
memberships during 2003 at an average price of $15,000 each. On
I am surprised that many
An important rule in private equity investing is only invest in new businesses led by people you know or by people
with successful track records who have positive business references. None of
the members of CMI’s management team live in the
Finally, the noise and air pollution from CMI’s proposed racetrack is likely to have a significant
negative impact upon
These questions, among others, are ones that I wish