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What makes a company attractive for equity investment?

What makes a company attractive for equity investment?

While hanging out in Subway on my Sprint air card I was poking around the U.S. Department of Commerce's Minority Business Development Agency website researching investment criteria for a friend. I have to go to TX in June on a AR road trip and be back in New York for an indie film production meeting, so I have to put the PowerPoint presentation together before the end of April.

May is wee people month so I shall be mapping the FL beaches and parklands with the shorties. I am still trying to talk Stephen, the Minion Blur out of buying giant cars at Walmart to add to his growing collection of automobiles so I may have to have this project done by next week if I want to get the landscaping finished in time for his turning five party. My kids are my incentive to read like crazy and play with illustrating the documentation in Photoshop. I thought I would be bored but I've become fascinated with the development of a two minute pitch with my blogging buddies. If you survive that you usually get to make the formal presentation to angel investors.

Hmm...

Ever wonder what makes a company attractive for equity investment? Here's few interesting quotes regarding what the MBDA has to say in a government blog post entitled "Attracting Equity Investors:"

"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."

I get to do the art for the business plan and due diligence analysis so that gives me the perfect excuse to ask a lot of clarification questions. It's moments like this that make my life interesting because I get an intimate overview of a small business's operation plus talking to other business owners can sometimes help you improve your own business plan.

If you have never created a business plan with angel investors in mind the government can be a great place to generate an outline regarding what is expected.

In the article I linked to the MBDA states when creating your business plan for AIs, "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: (1) Executive Summary (2) Description of the Company (3) Analysis of the Marketplace (4) Discussion of Products and Services (5) Marketing and Sales Activities (6) Discussion of Management and Ownership (7) Organization and Personnel (8) Funds Required and their Use (9) Financial Data (10) Exit Strategy."

As an artist I have to think of four slides for the 2 minute pitch: (a) 30 seconds, (b) 60 seconds, (c) 90 seconds and (d) 120 seconds. As an illustrator I have to envision what the venture capitalist will be seeing at the end of each of these markers. The 60 second slide has to be loaded at the 29th second mark, the 90 second slide at the 59th second mark, then the 120 second slide at the 89th second mark. I get one second to do a special effect dissolve from image to image. My task is to make each slide clean, neat, clear, simple to understand and easy to visually communicate the entire business model. 

Most people have more than one exit strategy developed for their presentation. If they do, then the last slide has to be specifically for that point of order alone. The first slide is the most important flow chart of the presentation because it has all of the elements explaining your entire business presentation.

Of the "who, what, where, when and how" categories of information the "what" never changes because it houses your goals and objectives. Everything else is flexible and can be tweaked but you have to stick to your objectives or your goals will probably not be funded. This is why I get to ask all those interesting, penetrating questions as an artist trying to ascertain what it is the client really wants. If a business owner fails to articulate the most important points of order regarding their business plan objectives and exit strategies, then my visuals are just colorful, meaningless crap to a potential venture capitalist...

P.S. don't wait until the last minute to do your business plan. Think of it as a living, breathing document that needs constant care and attention... You never know who you might run into on the street and that elevator pitch and quick e-mail may be the difference between funding your start up, getting a new cash infusion to a project in progress or having to shut down operations...

 

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Comment balloon 3 commentsC Tann-Starr • April 16 2011 09:40PM

Comments

I would think market share in their space too Carolyn. When I used to work for Cisco Systems they would NEVER acquire a company unless that company was #1 or #2 worst case in market share in their space. Ha Ha many of their exit strategies were to be bought up by Cisco making their founders rich. In the good ol days the acquisitions were in the billions of dollars like Coherent for about $6B, a lightwave company (dense wave division multiplexers). They just BOMBED with Flip cameras and dumped it laying off 550 employees so they are not geniuses either.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) about 7 years ago

Gary, the Flip fiasco actually surprised me because of the way it was aggressively marketed. I didn't buy one because I had an iPod Nano and my cameras did video as well. I know a lot of people who loved their Flip.

I think start ups have very little to say about market share, although an on-going concern would probably place that information in #5 in the Marketing and Sales section and possibly under #3 regarding Marketplace information. The cool thing about business plans is you can tweak and add as many tabs and categories as a business sees fit. I have five on the futon that I am reading now. :-)

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 7 years ago

C. Tann

It's all about the people in the busines. You have to be able to trust them.

Brian

Posted by Brian Madigan, LL.B., Broker (RE/MAX West Realty Inc., Brokerage (Toronto)) about 7 years ago

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