As discussed earlier in my previous articles, you can find a myriad of different investors around for the entrepreneur to decide on from. We’ve already covered the types of investors you can find, which is often business lenders, angel investors, institutional investors, or venture capitalists. This is really a broad range of investors that you might see. After you have your business plan and your executive summary ready, you are now ready to get the right investor to request capital.
There are many factors that you’ll require to take into account before actually contacting your prospective investor. There are many things you need to look into, such as for example stage, industry, and geographic preference. Furthermore, you should also look at their portfolio companies, who they’re and what they do. You will see all of this below.
Basically, stage refers to the stage your company is in. If you should be pre-prototype, or your prototype has just been developed, you are either seed stage or early stage. These stages are generally the greatest risk stages for investors, but their ROI, or return on investment could be very high. On another hand if your company is at a later stage and already has a regular infrastructure equity flow of clients, the risk is generally lower to the investor. If your company is either seed or early stage, you will be needing an investor who’s more than likely a venture capitalist and specializes in high risk investments. On another hand, if you should be a business that’s already established and needs bridge funding or expansion funding, you need an investment firm or an exclusive equity firm that specializes in the later stages of a company’s life. This implies that you will need an investor, who’s stage preference is either later stage, growth or expansion stage, or mezzanine stage. These are usually stages of companies who are ready for a liquidation event, where the investors exit and make their profits. This means that these companies could be either involved in a leveraged buyout or LBO, or a managed buyout or MBO. Mezzanine stage is each time a company is ready for mezzanine capital. This is actually the capital a business needs since it prepares for an IPO or initial public offering. This really is also a liquidation event.
Geographic preference is just as important as an investor’s stage preference. Your company may fit an investor’s stage preference, but you might not maintain the right geographic location that a particular investor might invest in. You will find different investors throughout the world and the smaller firms could invest in a particular geographic location, whereas a number of the larger global investment firms will invest internationally. Other investors may spend money on a complete continental area, for instance Uncle Vasya Ventures may spend money on Eurasia, which would encompass Russia, Central Asia, the countries that make up the former republics of the Soviet Union and Eastern Europe and Aunt Valya Private Equity might invest only within continental Europe. When seeking an investor, you should learn where their geographic preference is. Sometimes that is shown on the websites, and sometimes not. A great way to determine what geographic location an investor prefers is by taking a look at its portfolio companies and the countries where they’re located.
Industry preference is equally as important as the both previously discussed preferences. Usually investors spend money on the industries that their partners or portfolio companies have expertise in. When trying to find an investor, you need to look at the industry that you are in and you wish to have an investor who has got the expertise in exactly the same industry that you are in. You could have a fantastic product, but if you should be in the IT industry and you contact a VC firm that makes its investments in the pharmaceuticals industry, your executive summary won’t be looked at.
Determining an investor’s industry preference can be done by first taking a look at their portfolio companies, and sometimes, a preferences are shown on investors’ website. If you appear at an investor’s portfolio, and see what the industries that the portfolio companies are involved in, you can get a glimpse of what industry preference a given investor might have. It’s essential that you find an investor who’s preferences meet your company profile.