12 Top Tips
The relationship between investor and entrepreneur is like a marriage but one with a planned divorce;
• Starting building the relationship early, ideally before you need any money;
• Undertake due diligence on your potential investor and find out what is attractive to them;
• Make sure that every contact with a potential investor addresses the top three investment criteria (management, exit and revenue potential) in some form;
• The best exit is a trade sale for cash…it usually maximises value for all shareholders;
• The revenue potential of your company must demonstrate a scalable business that is capable of producing significant returns for an investor;
• The best business plans have a great executive summary – the point of an executive summary is to succinctly sell the investment opportunity, not to just describe the business;
• A compelling and fully costed business plan is essential;
• Be on top of, and understand, the numbers;
• Founders should ideally have made or intend to make a cash equity investment in the company, i.e. have ‘skin in the game’;
• Have a realistic valuation expectation – the investor has to make an attractive return on their investment;
• An equity deal is not just about the headline valuation; and
• An apparently attractive high valuation can be undermined by high liquidation preference multiples.
Raising external equity is rewarding and worthwhile if it accelerates the growth of your business. If an external investor is getting an attractive return then you are likely to be getting an even better return.
This is a win-win.