Often great ideas or proven concepts fail to attract quality capital partners purely based on the message delivery or lack of preparation. If an investor has to work too hard in order to understand how your product or service answers these five questions, they often will just move on to the next deal. You have spent all of this time, sweat and resources to build your "mouse trap," now it is time to prepare to sell your story.
What problem do you solve and how does it differ from or improve what is currently being done?What is the market need and how does your product or service fill that need. Make certain you fully understand the competitive landscape and can clearly articulate why what you do is better than current (and future) options. A good Investment Banking firm will get you in front of the "right" capital partners, partners who know your space and can add value to your future plans. You need to know the space better than the potential investor. Tip If your product is regulated, like a medical device product, search the FDA website for recent filings. Often the competitive landscape encompasses products that have not yet been commercialized.
What is your revenue model (how do you make money)? Answering this question goes beyond a simple we will charge customers "this" and it will cost us "that." You need to understand and be able to articulate such things as what does it cost you to acquire new customers, what is each customer worth and what is the value proposition for the customer. If growth or scale can significantly improve your revenue model, you have an advantage that others vying for the same capital may not have. Prepare a financial model which captures how profitability improves with scale. Investors will want to you to be able to talk in terms of "Once we reach this threshold (a certain level of revenue or certain number of customers, etc), each incremental dollar will drop .X dollars to the bottom line," as an example. Tip Clearly articulating your revenue model and related projections is critical to securing capital. If this is not your strong suit, make the investment to get the appropriate financial resources to assist with these models.
How will the capital infusion move your business forward? Investors want to know how their money will be used. For example, simply stating marketing as a use of proceeds is not enough. You need to be prepared to detail out the type of marketing initiatives, why these are the preferred initiatives and your plan to monitor their effectiveness. Tip If you know you have a weakness in your current team, dedicate some of the funds to strengthening the team. Investors generally appreciate entrepreneurs who realize their limitations in areas like operations or finance and in the end, feel more comfortable investing with someone who is able to identify and acknowledge areas where they need help.
What are the primary risk factors facing your opportunity? Risks come in all shapes and sizes. You likely will have more control over some risk factors, and less control over others. They key is to understand all the risks that you face (execution risk, regulatory risk, competitive risk, etc.) and have well thought out plans on what you intend to do to mitigate each risk. Tip Most business owners are adept at talking about the "upside", however just as critical is demonstrating your knowledge and plans to address the downside. Potential capital partners will ask questions about risk factors. Preparing to address these questions upfront will improve your chances of obtaining capital.
What are you looking for in a Capital partner? There are various types of capital and understanding what you are looking for in a Capital partner is an important part of the process. Although your Investment Banking partner will play a key role in this process, it is important for you to understand what type of capital and capital partner best fits your future business needs. Tip Do your homework before talking with prospective investor sources. Look to see if they have a website and review what types of deals they have invested in previously. Search the individuals you will be talking with on sites like LinkedIn to see if there are common contacts or relationships you may have with them.
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Kevin Gadawski, CPA, CVA, is Executive Vice President of Littlebanc Advisors, a boutique investment banking firm based in Boca Raton, FL. Mr. Gadawski has more than 20 years of financial, operational, and sales experience including operating and selling two medical device companies and serving as the Chief Financial Officer of several other public companies.
Littlebanc Advisors is a boutique investment bank that raises capital exclusively for small private and public companies. Littlebanc’s core industry focus is those sectors in which the management team has extensive experience and market insight, including healthcare technology, healthcare services, and medical devices. With its deep roots in research, Littlebanc differentiates itself by matching client companies with partner-minded investors using a fundamental rather than structural approach. This fundamental focus fosters a stable and long-term shareholder base, minimizes capital dilution, and enables Littlebanc to complete transactions quickly. For more information and to view our recent transactions please visit www.littlebanc.com.
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