February 26, 2018

How to succeed in finding an investor

February 03, 2014    PracticeРаспечатать эту статью

How to succeed in finding an investor

Advice to entrepreneurs on how to negotiate with the investor.

What are the prerequisites to convince venture investor to invest in your business ? What criteria are guided by such investors when choosing a company to which they are willing to invest ?

Criteria that guide investors when choosing a company for investment :

• The idea for the business ( technology and production methods , service and product)

• Transparent development strategy and achievable goals

• Personal qualities of the entrepreneur as an important guarantee of success

• Logically built business process management , clearly defined business processes , or at least de facto work

• Availability of staff motivation , they share the objectives of the business

• According to the account all the results understandable , visible prospect for 3-5 years ahead

• Have more than one possible exit their business , some of them – the best

In different cases, the weight of these criteria may vary considerably , and sometimes some of them can even be dropped. Most often, when the company’s financial accounting The Company now very weak, but it is clear that this deficiency is easily corrected.

There are many opinions about what criteria are sufficient for the selection of the candidate for investment. Single specific set may not be : even portfolio investors when selecting an object for investment management and internal criteria ( fund company , investment bank , etc ), which may change over time . Based on the experience of nearly a hundred projects , which was attended by experts of our company , you can select a list of conditions for adequacy:

• Project leader inspires confidence

• The business model clear

• The financial situation is transparent

• The assessment is acceptable to the investor

• Good investment performance

This, of course , not a dogma, but if you remove at least one of these criteria , consider whether the investor a reasonable basis for the negotiations. In the early stages , there are some essential criteria for success: baseline data collection , pre-treatment , meeting with the leaders of the project. Here there is a problem mutually transaction.At this stage of the transaction appear some circumstances prevent its conclusion that the differences in the understanding of the meaning and vision of the results of transactions between the investor and the entrepreneur.

This situation is not initially in equilibrium , because the investor is familiar with the purchase / sale of shares of companies . Many investment funds have specialists who have considerable experience in attracting investments in their own projects , also participated in the detention of dozens of investment transactions . A trader usually looking for an investor in the first or second time , the second time may be unsuccessful after the first …

How to drop all prejudices ? It’s simple: you must follow the principle of ” prejudiced – armed” : it is necessary to study the motives of the investor before starting talks with him . Here are some of the most characteristic internal barriers that must be overcome the entrepreneur :

How to overcome the barrier of prejudice? Very simple: use the principle of ” forewarned – armed” : study motives investment partner before start competitive negotiations . Here are the most typical internal barriers to be overcome himself an entrepreneur :

• The negative valuation of the project , the complexity of the allocation of share

• Loss of control over the development of business

• The desire to hide imperfections or failure

• Unwillingness to share authority control , inability to work with the catch of collective management

• Considerable overhead for attracting investment and the need to be accountable for all the investo

r• The need to explain and justify development strategy to create documents that convince investors

• Strategies investor opaque

• Difficulties in corporate governance in line with international standards

• Reduction of income subject to transparent financial accounting

As a conclusion , we can say that the main internal barriers are fear entrepreneur transparency and laziness. These factors often lead to an unsuccessful search for the investor.

Professional investors in assessing the risk of the potential transaction governed by rich experience and well-established tool in the study of “target” businesses, most of which is a thin conducting business audit for a company that is seeking an investor ( the so-called due diligence, or DD). Here are a few quotes selected from the audit reports on the business in which we were , and as an entrepreneur and as an investor :

• Do not complete marketing analysis , macroeconomic factors are not taken into account

• Analysis of competitors is not credible

• No collegial bodies of the Board

• Represented not a complete package of permits, no necessary certificates and licenses

• Investments required higher costs of creating the same projec

t• Prospects for investor unclear level IRR below standards established fund

• Property rights are not suitable fund jurisdiction

• Drivers accelerate after the big market not disclosed

• Opaque financial accounting

• Motivation of the administrative board is not intended to increase capitalization

Of course, not all of these indicators are fatal to attract investors. Many of these factors can be offset by working together, if there is mutual understanding between the investor and entrepreneur. Only if both sides are willing to compromise on the initial stage , deal could be struck . Each project is unique investment .

Taking note on the above circumstances , the entrepreneur is much easier to negotiate with the investor , so you can count on success in attracting capital.

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