Let’s Make A Deal: Creating Value for the Investor from Day One
You’ve built a company from blood, sweat, and tears. You’ve poured your ideas, heart, and money into building it from a dream into a business with customers, revenues, and employees. Now you want to take it to the next step—you want investors. You’ve decided it is time because you:
- need to grow to the next stage;
- have new product ideas;
- need to fund the development of existing products to the next stage; or
- want to exit/retire/cash out some of your funds.
Your ready to make the move to take on investors, but the big question is:
Is your business ready … and are you really ready to make the transition to doing business differently … if that is what it takes to get investors?
The Transition: Creating an Investor-Ready Business
Getting ready to raise funds, get investors for your business is very similar to the process of getting your house ready to sale. To get the best price, to get the biggest field of potential buyers, you have to be able to stage your business to look its best, to be ready for move in and to be better than the comparables on the market. You aren’t going to be the only deal in town and a “fixer upper” isn’t going to appeal too many in the market.
Housekeeping and Major Repairs
Creating value for the investor begins by making sure you have taken care of the light housekeeping and the major repairs. An investor doesn’t want to be facing the need to see his/her funds going immediately to tending to things that should have already been addressed, so the business needs to have the accounts in order, the taxes up to date, and the day-to-day operations and processes in hand. Furthermore, the investor doesn’t want to be at risk for funds going to major issues like pending lawsuits related to employee related activities, unpaid taxes, intellectual property, vendor or strategic alliance disputes. So all the details of the business need to be addressed cleaned up or at a minimum, identified and ready to be disclosed as a risk and how it is being mitigated.
Paint, Polish, and Stage
Once you have the maintenance issues addressed, it is time to improve what you have and put it in the best light it can possibly be. It is time to position your business to its best advantage. Again think of this like you are going to stage your home for an open house, you want fresh paint, the furniture polished, and the stage set for the buyers. When it comes to your business, this means making sure to position your team, your products, and your capabilities to their best advantage.
The Best Feature?
When it comes to selling a house, they tell you to make sure you emphasize the best features: location, fireplace, square footage, etc. When it comes to your business, you are looking to emphasize the best selling points that the competition doesn’t have and when it comes to business it may surprise you to know that it won’t necessarily be the current product offering that closes the deal.
You are enthusiastic and fascinated with your product. The technology is the greatest thing since sliced bread. You’ve built the better mousetrap … so what? Millions of new ideas, technologies and products are created and go to market every day and no one buys them. The best technologies are often surpassed in sales and out lived by “inferior” ideas and technologies. Why?
Value Creation: The Business Model, The Team, and The Customer Markets
If it were only about the product, then pet rocks would never have sold! If it were about flawless technology, would Microsoft products be on more computers than any other software? What makes a business have value to an investor goes beyond the current product offering to the long-term ability of the business to sustain and grow as a business. In real estate it is about location and staging; in business it is about the business model, the team, and the ability to connect to the customer markets.
The Business Model
Think of your business model with the same level of detail as if you were looking at a house for sale. In a house, you examine the foundation, the structure, the wiring, and all the potential for the future … can investors do the same with the “bones” of your organization? What are these “bones”?
When it comes to success, it is the team members that ultimately make the difference. A capable team will overcome the odds, make things happen, and take a good product and make a great company. They’ll take a great product and make a fantastic investment. So when it comes to creating value, the major selling point is the team skills, experience, and capability.
The Customer Markets
Let’s talk potential. If know one wants what you are selling … or wants to buy it at a price that makes money, it doesn’t matter how wonderful, innovative, and revolutionary your product is. So don’t show me a picture of you with Warren Buffet, Jack Welch, or Donald Trump and tell me how they “OWN” the company that is the market for your product and how you’ve met them and how wonderful they think your product is. Because if you do, then I’m not buying … if you had sold them, they would have bought it already! If you have a great idea and these power players thought your company, your team, or something wasn’t worth investing in then I am not interested either. Get real and get numbers and tell me how and where your real-world customer is. Meet the big guys, but show me where the money is going to be—for me.
Let’s Make “The” Deal
When it comes to getting an investor, you need to make “the” deal, not “a” deal. You want to show where the value is for the investor. If you can’t walk them through the business and show them the all the features and show them the value, then they aren’t going to buy. There are a lot of deals out there, but yours has to stand out as the home of their dreams.
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