I was at a meeting recently where I was talking about how to make a company more investor ready. It became clear that it would be handy to produce a one page synopsis for my colleagues, and once I had done so I realised this would be a good thing to share.
1. Management Team
The management team is expected to be strong, include experience, and be passionate about achieving business plan objectives. It is preferable if one or more members have been on a previous company growth journey, ideally all the way to exit.
The total addressable market is expected to be large and growing, preferably rapidly.
3. Customer validation
Probably the most important factor influencing investors is validation. Is there good evidence that your offering will be purchased by your target customers? Do you have an advisory board of credible industry experts? Do you have any strategic partners within the industry? Do you have early adopter users to whom investors can speak? Do you already have paying customers?
4. Business Model
Most start-ups fail because it costs more to sell their product than they are able to make from the sale. A big part of developing a viable business model is determining a cost effective way to sell the product. The other part of it is figuring out a great way to monetise customer value. Cost of customer acquisition should be low relative to lifetime value per customer.
Company must have a great product or service with clear competitive edge (in terms of meeting customer needs). It will raise concerns if the offering, even if it is in itself efficient, introduces new challenges / problems in the process of adoption. Disruption is not always a good thing, and it is easy to under-estimate customer inertia!
6. Business Plan
Company must have a clear plan capable of implementation within the planned timeframe.
7. Competition / Barriers to entry.
Who are the competitors, what are their strengths and weaknesses. How can the company prevent others from “stealing” the idea and running with it? Does it have a strong intellectual property position which is unique, preferably in the form of a patent or other “secret sauce”?
8. Legal and Regulatory environment
Will current or anticipated legal or regulatory issues benefit the business, or impede it?
9. Capital Requirement
Is the funding requested enough to take the company all the way to profitability, or at least to a clear “value inflection point” at which others will be attracted to invest at a higher price.
10. Opportunity for a profitable exit
How will the investor realise any gains in the value of the company? Who might acquire the company? Is there a community of likely buyers, and do they have a track record of making acquisitions, and deep enough pockets?
11. (O.K. I cheated here) Strength and breadth
No weaknesses which are too hard to address in any of the above criteria!