Friday, March 11, 2011

How to Pursue Equity Investors

If you want to pursue equity investors for your business, then you need to be aware of what investors are looking for. This will help you tailor your pursuit of them - the people you talk to, what information you provide, your "elevator" pitch, etc. The first thing to realize is that equity investment is a relationship business. The best way to do this is to either have an existing relationship with an equity investor or to get a referral or introduction from someone who does. If you cannot get an introduction, be prepared to be turned down repeatedly. If you are, don't get discouraged. Continue to refine your message and pursue other investors. You will find one that's a good fit for you and your business.

It's not always the case that you get turned down by equity investors when you do not have relationships you can leverage. It is true that you have much higher credibility when you are introduced by someone whom the person or entity you are pursuing considers credible. But you can leverage other networks. You can find investors who may be alumni of your school, who may belong to an organization you belong to, or who may have a strong affinity for your particular industry. Or, if your company has won awards, especially for growth, creativity, or customer service, you can tout your awards to potential investors. Any kind of connection that will encourage someone to take a call from you or read an email is a connection that works.

If you do not have a clue where to start, consider entering a business plan competition or attending (preferably participating in) an angel or venture capital conference or presentations. You can meet people who may be able to help you and the exposure can definitely help you assuming your messaging is clear. If your messaging is not, this exposure to other entities seeking investors will help you see the holes in what you are saying or doing, and how you can correct those issues.

If you wish to pursue equity investors and do not yet have entities or individuals who have expressed interest in your company, you will have to "shop the deal". That means that you will have to put out feelers to generate interest in your company. For smaller companies seeking angel investors, the best way to do that is to create an Investor Profile Sheet, a one-page summary of the company that provides a snapshot of the company, its market, its competitive advantages, and its performance to date. If an investor is interested but doesn't believe your company is a good fit for him/her/it, then the investor will forward the Investor Profile Sheet to others who may think your firm is a prospect.

Once an investor expresses initial interest, or as the first step if you are pursuing private equity or venture capital, send the Executive Summary. This should only be 3-5 pages in length and provide an overview of your company, the market, the management team, the growth prospects, the strategy, and the plan. You should include basic historic and projected financials. You want to paint a positive picture. If there was a glaring issue in the past (such as a huge drop in revenue), mention it here and how you solved the product. This will enhance you and your company's credibility as you go forward. (Some business owners try to hide problems and only bring them up when the investor finds out. This creates suspicion and undermines credibility.)

Once an investor expresses serious interest and has signed a Confidentiality Agreement (CA) or Non-Disclosure Agreement (NDA), or better yet, a Letter of Intent (LOI), then share the complete business plan. This includes full details on your market, your prospects, your goals, and your plan and methodology for achieving these goals. Finally, after you have an LOI or equivalent agreement, share all requested material with your now fully engaged prospective investor.

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