If you run a business looking for capital you will find investors are more active and willing as they have more money to put to work than had been the case in the past few years. While deals are getting done, it is a more deliberative process than the vigorous late 1990s market was.
Although every (investment) firm might specialize in a particular domain all share common traits for companies they will invest in. Though money is abundantly available, it clearly is an investor’s market. It’s not uncommon for institutions to evaluate several hundred opportunities each year; even the most aggressive investors will close only a small percentage of the qualified companies they evaluate (10% seems to be the consensus). Investors are quick to point out that they are impressed by the quality of deals they are seeing and freely recognize they are passing on quite a few good companies in what amounts to funding of the fittest in this highly competitive environment. Among the more compelling and universally expressed investor insights, if you are seeking capital for your business you have a greater chance for success if you:
1. Feature an Excellent Management Team: Investors are no longer simply looking for impressive resumes, they want to see track records from management teams that have produced results and have worked together over the long haul. Many give preference to management teams that have stayed together after facing adversity in the business both as a way to prove stability and to demonstrate the team can successfully overcome challenges.
2. Differentiation and Vision Matter: Solving marketplace problems might be enough to keep a company in business but it’s unlikely enough to attract investors. Solving problems is a lagging indicator while investors are more interested in leading indicators. With an emphasis on unique, be sure to communicate your company’s unique strengths to any investor committee and then reinforce these superior advantages by outlining management’s view of the future and how your company is poised to capitalize. It’s all about growth.
3. Emphasize Business Development History and Strategies: Present accurate and comprehensive sales funnel information, including historical sales cycle times and close ratios. Comparative sales funnel data is also invaluable, especially if the company can show reduced sales cycle times and higher close ratios. Management teams that are able to communicate why and how they have improved sales cycles and close ratios stand a better chance than those not well-versed in these essential details. Deal-flow is an important consideration; investors are keen to know about sales not closed and the reasons why. In some cases, companies gained rapid investor committee approval by blending their vision with deep analysis on business they had lost and how an infusion of capital would be allocated to apply valuable market intelligence gained to expand product offerings and service lines.
4. Style and Substance: Everyone seems to have slick presentations and wonderful PowerPoints which undoubtedly diminishes the impact. Businesses piquing real investor interest are able to emotionally and intellectually grab investor attention by highlighting strategy and then supporting it with meaningful and measurable plans. There’s a strong correlation between enthusiasm for an investment and enthusiasm for the product/service, the latter achieved by having (prospective) investors become intimately familiar with your business. If they can’t relate to your business it’s unlikely an investor will put up risk capital to fund your entity.
5. Clean, Accurate, Comprehensive Financials: Though this should go without saying, investors regularly report too many companies seeking capital do not present usefully professional financial data. Investors will base their smart decisions on the potential to make money, they are not in the business of or interested in putting their capital at risk for someone to chase a dream. At minimum, professionally prepared income statements, balance sheets and P&L statements will all provide necessary detail to properly grade your business as an investment worthy property.
6. Validate Before Proceeding: Even the best management teams will have blind spots and before seeking capital, you are well-served to hire credentialed professionals to assess your business, critique and refine strategies and business plans so that they are best positioned to earn investor trust by having fully considered all threats and opportunities, having excellent answers for the toughest questions, the most significant of all “Why should we invest in you?”
Of course great ideas will always matter, but sincerity seems to be more important in this environment. Investors are anxious to work with real people in real companies with real upside and have available capital for those who prove they qualify.
Mike Berman is a business executive with more than 20 years of executive experience in diverse businesses including start-up and turn-around situations. View his blog at http://bermanmeansbusiness.com/blog/.