To be investment ready, business founders need to firstly understand what type of investment are they seeking based on their business age and stage, and, therefore, what does their potential investor universe look like? It’s very much an outward looking exercise.
Businesses who are at an early stage (pre-revenue or early stage sales), will want to identify investors/early stage funds who have expertise in this type of investment (high risk, high reward), and often play a more strategic hands-on role in the business (i.e., they bring more than just $$). In addition, knowledge and expertise on how the required capital will be deployed for this stage of business is critical for all parties to understand and agree.
The other end of the spectrum is where a business is more mature (post high growth sales point) and are looking for market expansion capital, or acquisition capital to achieve new levels of growth.
Similarly, there are investors who play best in this end of the investment market (lower risk, lower return), and tend to be more hands-off in their role, unless the capital comes from an industry player looking to horizontally or vertically integrate with the target business. Again, both parties will want to agree the purpose and deployment of that capital, and it will generally be much different to that of an early stage business.
In summary, investment readiness has two key phases, this commentary covers the first key phase of thinking that needs to be undertaken. The outcome of this phase is a better understanding of where your business fits in the investment spectrum, based on its age and stage, and a key marker of that will be what the capital is required for.
This will then set the right direction and understanding as to where the investment capital is going to most likely be found based on demonstrated expertise of playing in that space. It is only after having completed this exercise, can the real work begin on getting your business ready for investment, which involves a detailed inward-looking exercise, but more on this in the next instalment.
Click here for Part Two.