Equity Investment Candidate
by Terry Stidham, President of Target Search Group
Equity capital generally is composed of funds that are raised by a business
in exchange for an ownership interest in the company. This interest can be in
the form of ownership of common or preferred stock or instruments that convert
into stock.
In addition to taking an ownership interest in your company, equity investors
may also participate as a member of the company’s board of directors and take an
active role in managing your company.
However, in comparison to debt financing,
or loans, which must be repaid over time, equity financing does not have to be
repaid.
While equity investing can come from family and friends, it’s often
raised from high net-worth individuals or from venture capital or private equity
firms. Investors are looking for early stage companies that can’t yet obtain
traditional financing; a return on their investment of at least 30-40 percent
and a clear strategy to realize their investment within 3-7 years.
What Makes a Company Attractive for
Equity Investment?
- Industry – Typical companies that receive equity investment are high-growth companies, with the potential for a high rate of return. These high growth industries include the energy sector, technology and media and entertainment to name a few. The companies receiving investment generally have the ability to be a market leader and often capitalize on "first mover advantage" in other words, being first in a growing marketplace or industry sector.
- Clear Exit Strategy – Angel investors and venture capitalists are attracted to companies that have a clear exit strategy, allowing them to obtain the return on their investment. Often known as a "liquidity event", this includes an initial public offering; private placement, acquisition or merger with another company or management-led buyout. In general, investors are looking to exit an investment within 3-7 years.
- Financial Return – Equity investors are attracted to companies that clearly demonstrate the likelihood of significant financial returns. In general, these investors would like to see profit margins of more than 50 percent.
Requirements for Obtaining Equity
If your business is a likely candidate for venture capital, you must prepare
certain information to sell your idea. This includes a very short oral
presentation; an investor-oriented business plan and executive summary; and
documentation for any due diligence analysis.
Oral Presentation - In searching for venture capital, you will have to pitch
your idea to potential investors, often in informal settings. To do this, you
must present your business concept and reasons for a high return in a short,
concise (no more than two minute) presentation. If you are then invited to make
a formal presentation to a venture capitalists or group of angel investors,
these presentations generally last between 5-10 minutes.
Business Plan - You must prepare an investor-focused business plan that
remains current based on market or business model changes. This business plan
must include the following: .
- Executive Summary
- Description of the Company
- Analysis of the Marketplace
- Discussion of Products and Services
- Marketing and Sales Activities
- Discussion of Management and Ownership
- Organization and Personnel
- Funds Required and their Use
- Financial Data
- Exit Strategy
Due Diligence - Any company looking for venture capital should anticipate and
prepare for the due diligence analysis that will be undertaken by any investor.
In general, investors will want to see support for the assumptions and
projections that are made in your business plan and presentation and to assess
any liabilities. They will review financial statements, tax liabilities and any
other potential legal liabilities. They will also want to test any technology
and review any licenses, patents or documentation required to operate your
business.
 |
| If you are ready for an Equity Investment then contact the Deal Sourcing Professionals at Target Search Group today. |
No comments:
Post a Comment