So there you have it, 10 ways to attract private equity. Craig O. Allsopp is an investment banker with Corporate Finance Associates, a full-service mergers and acquisitions firm with an office in Portland, ME and 20 other cities around the country. Business owners interested in tapping this vein still must clear a number of hurdles to attract private equity investors. When we look to support a management buyout, we typically seek out companies with proven incumbent management teams that have been running the business for some time pre-deal. Still, for many companies—particularly those with serious growth ambitions—outside funding is a necessary precondition for success. This is one of the reasons why companies with service contracts are so popular with investors today. The research you do as part of this effort will also help answer two of the BIG investor questions: (1) "How big is the market?" When a private equity firm gets involved, there will inevitably be change so management teams must be ready to embrace it. Fill Gaps in Your Team. Select an equity crowdfunding platform that fits your business needs and that supplies you with investors who have experience working in your industry. So how can you prepare your business so that it will be attractive to potentail investors? Copyright © WestBridge 2020 - WestBridge Fund Managers Limited is authorised and regulated by the Financial Conduct Authority. 7. Attracting investment in your business is something that needs to be given careful thought — and a great deal of planning Securing private equity investment in your business is very rarely, if ever, a case of simply pitching an idea to investors, Dragons' Den style, then sitting back and waiting for the cash to … In general, if you are seeking venture capital, you should obtain assistance from an accountant or lawyer to ensure that these materials are in order. An audit shows a prospective buyer that you are serious about doing the little things right - which can be a powerful signal to send when you are in a negotiating process. In such instances, we look to professionalise the business at the governance level by introducing comprehensive board packs and KPI reporting and, in most instances, we will look to appoint a non-executive Chairman to the board. Turning Over a New Leaf: Life After Selling Your Business, Podcast: What an Opportunity Zone Investment Can Do for You and Your Capital Gains, an Interview with Brian Forcier, Preventing Seller’s Remorse in a Mid-Market Deal, Podcast: What Not Backing Down Can Cost You, an Interview with Michael Dash, Podcast: Planning for Transitional Challenges, an Interview with Jennifer Fondrevay, Video: Exit Options for Business Owners Who Are Thinking of Selling, 6 Things to Consider for Your Post-Divestment Life, Private Equity Deal Sourcing Strategies in 2019, Cash Forecast Excel Tool: In Tough Times, Cash is King, Investors' Decision Making Process & Why You Should Know it Before Going to Market, Pitfalls Around Earnouts (and Why They Rarely Payout), Like Rodney Dangerfield, Earnouts Just Don't Get Any Respect, Company Valuations and Why They're the Wrong Metric for Business Owners, Earnouts: The Double-Edged Sword for Sellers, customer concentration is a major knockout for sophisticated investors, intellectual property is more valuable today than ever, Tying the Knot: Getting to 'I Do' with the Right Private Equity Partner, Overview of Private Equity for Entrepreneurs, Podcast: Selling Your Business to a Private Equity Group. For the Founders, taking VC money can also come with huge benefits – startup investors can offer valuable support, guidance, and resources to new founders that can help to shape their company and increase its chances of success. Many business owners are surprised to learn that customer concentration is a major knockout for sophisticated investors. E - Renew or change your cookie consent, /2/4865/sale-process/buyer-types/10-ways-to-attract-private-equity, The Value of Investment Bankers: Business Owners’ Perspective, Measure of a Company’s True Intrinsic Value, Business Valuation Excel Template: 10 Simple Steps to Success, Letter of Intent: Examining 3 Different Drafting Styles. Ideally, you should give yourself at least a year to prepare your company before you seek outside funding. The ideal scenario is if your company can grow and flourish without you there. A private equity investor outlines how an entrepreneur can position his or her business to attract potential backers. Sign up to receive our occasional newsletters. Buyers will be armed with this information; to negotiate properly, you should be too. In particular, we place value on characteristics such as strong trading visibility from long-term contracted revenue streams and established relationships with blue chip customers. Z, Copyright © 2020 Divestopedia Inc. - Read more. These are valuable assets and you want to make sure you get fairly paid for them. However, in comparison to debt financing, or loans, which must be repaid over time, equity financing does not have to be repaid. X Therefore, a business plan may initially involve investing in more overheads to lay the necessary foundations for growth, and this is something that needs to be identified and planned for before going to market. Of course, not all private equity firms have the same investment criteria but management teams who actively focus on building defensible characteristics are likely to be the ones that successfully carve out a strong market position and ultimately attract private equity investors. Your existing corporate counsel may not have sufficient experience. Against that, you must weigh the loss of control you will incur, and the increase in oversight you will most certainly experience. V Edward Minton is an investment manager at WestBridge, a private equity firm that invests between £10m and £20m in established, profitable and ambitious UK SMEs with enterprise values of up to £40m. More importantly, they are self-aware individuals who understand their own weaknesses and are able to build a team around them with complimentary skills and capabilities to help drive value creation initiatives. More of your questions answered by our Experts. They will review financial statements, tax liabilities and any other potential legal liabilities. If you would like to hear more about our investment criteria or discuss a particular opportunity, please do get in touch. A North-Yorkshire medical device supplier has launched a recruitment drive after it secured £650k in funding. Read more. Lawyers with experience in the field of entrepreneurial dealmaking will help you conduct efficient negotiations. A Every dollar you add to profit increases value—so eliminate excess costs. Image (CC): Jeff Julian / www.smartscities.com Time will start to speed up the day you accept a Letter of Intent from a prospective buyer. How to Attract Investors for a Startup. Have audited, or at least reviewed, financials for the prior three years. The same goes for retiring baby boomers that decide the time is right to sell with middle market valuations on the rise. 6. This business plan must include the following: . Â, Private Equity and Venture Capital Sourcing. D Sloppy numbers sap value like a poorly tuned engine saps horsepower. If you are not going to be there, a buyer needs to have confidence in those who are. 10 Ways to Attract Private Equity. In general, these investors would like to see profit margins of more than 50 percent. The decision to bring outside investors into your company will be one of the most important decisions of your life. Owen Trotter is partner at Key Capital Partners, which invested £4.3m into revruitment agency Templine last year.If you would like to contribute to Masterclass, email Colin Cottell [email protected]. The due diligence associated with private equity transactions can be extensive and time consuming, but this can be streamlined if management teams are able to present a detailed and coherent business plan covering a three to four-year time horizon. In addition to taking an ownership interest in your company, equity investors may also participate as a member of the companyâs board of directors and take an active role in managing your company. We also look for companies with strong and defensible positions in their niche markets, this being a definitive feature of other recent WestBridge II investments - one being a niche environmental consultancy focussing on the aquatic, marine and ornithology sectors and the other being the market leader in the supply and maintenance of automatic vehicle and train wash systems in the UK. Organizing these records beforehand will help keep the deal on track and, perhaps more important, reaffirm for the private equity group that they are making the right deal. Once you have made the decision to seek investors, you should look to eliminate any unnecessary costs you can. I'm sure there are more, but more often than not, if you get these 10 right, you will bring to the table interested buyers who are more likely to see the deal through. Sitting down with an investment banker and your other advisors (lawyer, accountant, financial planner, etc.) All predictions must be realistic, measured, robust, accurate and achievable — anything vague or wildly optimistic is bound to set alarm bells ringing. Your company will not trade at the same multiple as IBM, but it may be worth more (or less) than you think. I Consider launching new products or entering new markets to show growth potential. Social media can be your best friend as a lean startup or solo entrepreneur looking to … R In general, these investors would like to see profit margins of … Alternatively, and increasingly, we are seeing situations where owner managers have successfully planned for succession and taken a step back from the day to day operations in anticipation of crystallising some value through a partial exit. Management teams come in all different forms but the successful ones tend to be highly entrepreneurial, well rounded, have deep networks within their niche markets and know exactly what they’re good at. T "We like to see owners start meeting with their advisors two to three years before a planned transition. Get good adviceOne of the best investments you can make is to appoint an advisor you can trust — and to do it sooner rather than later, so they know your business inside out. It's important that the investor feels they can develop a good relationship with the team — most will expect to have a presence on the board, so they need to be able to work effectively with other board members to take the business forward. Confident answers make it hard for buyers to walk away. It may seem counterintuitive that you have to reduce costs in order to bring on outside financing, but showing careful financial control—and maximum cash flow—can make your company more attractive to investors.
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