10 Things Investors Look for in a Deal

BOULDER, Colo. - Oct. 29, 2013 - PRLog -- 10 Things Investors Look for in a Deal

By Kim D. Southworth
CEO

You’re a business owner.  You want to grow.  You want funding.  It’s the common need for most businesses out there.  Looking to investors for your company is an obvious strategy, yet most never get the funding.  Why?  Most business owners think of their product and their passion as the main component that will get funding.  Investors are looking at your business differently.  Here are 10 things investors look for in considering your company for investment.

1.  Management - Investors invest in people not companies.  Yep, you heard it right.  Investors are first looking at YOU.  Are you a strong leader?   Do you have experience?  Does your team work well together?  Do you have history?  What will you do in a crisis?  How much time and effort are you willing to put into the business?  This is the first thing investors look for.

2.  Understanding – Investors are looking at how well management understands business in general, operations, their industry, the competition and market share.  They want to know that YOU know your place in business.

3.  Numbers – Investors want solid and realistic financial projections (no pie in the sky), it’s a direct reflection on the competency of the management team.  They want to know WHY you have those numbers and how you arrived at that particular set of projections.

4.  Structure – Investors want to know how you intend to structure the deal which includes the capitalization structure, subsequent funding needs of the company and how it will affect dilution and ongoing operation.

5.  Exit – What is your exit strategy, how will you execute it and when? Do you plan to grow the company to a point where you are bought out, go public, or stay in forever?  Investors want to know these things.

6.  Commitment – Do you have “skin in the game?”  Investors will want to know how much actual cash the owners have invested in the company?  Investors also want to know how much you have to lose, and what’s going to keep you from walking away if a better offer comes along?  Investors need assurance that you are in it for the long term.

7. Salary – What do you plan to pay yourself and your management team?  Investors expect your company, as a startup, to be able to pay the management team adequately, but don’t expect a huge salary.  Exorbitant salaries are unacceptable especially in a start-up scenario.

8.  Lack of capital – Make sure you do not underestimate your financial needs.  A lack of adequate capital is the number 1 reason companies fail. Investors will expect to see a “Use of Proceeds” document that shows details of how their money will be spent.  This document will show that you have thought out exactly how and where money needs to be spent in your company for growth.  Most investors will not invest without this document.

9.  Legal – Dot your I’s and cross your T’s when it comes to the legal aspect of your business.  Investors want to make sure all contracts, patents, technologies and proprietary information are in place and done right.

10.  Action – Some companies get stuck in professional money raising mode, but never execute their business plan.  They are continuously in need of more, yet growth does not seem to happen.  Don’t be that company!  Investors will see through it and you run the risk of never getting your business off the ground.

It can be daunting to share intimate details of your business with investors, but you will have to in order to get the growth capital you need.  An investor is not an advisor, so make sure you are confident in all aspects of your business before you proceed.