Private equity, which can include early & late stage venture capital as well as angel investment, may be the sole answer for your growth funding. However,other businesses should not even consider wasting their time chasing these kinds of funding sources.
Private equity funds receive an endless stream of business plans each month. And, no matter how large the firm, there is just no way they can review and appropriately analyze all of those plans. You're kidding yourself if you are hoping for a full review of your business model or deal thesis. There just isn't enough time in the day. Even if the organization seeking funding is the perfect match for the investors, it still remains highly unlikely that its business plan will get any consideration from just merely sending a business plan to one of the managing partners.
So, how are you able to get these investors to stand up and take notice of your business?
You need to get reliable introductions. Now, this does not mean having your best friend call the investment firm with a recommendation regarding your business. It means getting a valid professional recommendation from someone who the investors have either worked with in the past or trust completely. It's pretty simple.
Here's a typical scenario involving the President of a business incubator in Michigan. One of their client companies was quickly burning though its cash and decided to seek another round of outside investment. After searching all over for months, one of the original founders got in contact with a pat mentor and colleague who happened to have dealings with a very prominent venture capitalist in Ann Arbor (a VC that the company had tried to contact many times in the past via cold calling without success).
The venture capitalist not only knew of this mentor, but totally his insight and judgment. Turns out that he had known him even longer. Within a few weeks, this VC invested $500,000 in early stage VC funding, and another $2.35 Million of late stage VC funding in the company within one year; allowing the business to quickly grow sales and transition into a full operating company on a fast-tracck growth curve within 18 months.
Now, not all of us have mentors, acquaintances, relatives, or old friends that are that well connected. However, that shouldn't discourage you. All you have to do, instead of wasting valuable time sending blanket solicitations to private equity firms, is to spend your time researching, identifying and contacting those sources and individuals that you know well, who the investment group trusts. These folks are called lead generators, investment affiliates, but are actually the "gate-keepers".
You may believe that is a much more daunting task than just finding an investor for your business. You're correct. However, that's what works, and that's the most convenient and productive way fro PE firms and venture capitalists to pare down their targets. It's not done through reading and evaluating every business plan that they receive. Believe me, I've been there. Now, there are many ways to identify these "gate-keepers":
You need to seek out other professionals in your local area-particularly those in your industry. These could be members of your local chamber of Commerce, accountants, lawyers, executives, or other business owners. Investors also use their professional's services and trust these people and their judgement, or may have worked with these firms in the past.
University campuses are also a good source for an introduction to investors. Many college professors, especially those that originally were from private industry prior to going into teachers, have substantial rolodexes, and long-time relationships going back decades. The key is to get them to utilize those contacts to help you, and guide you to viable investors. In many cases, these individuals will consider this as an opportunity for them to win "professional brownie points" with the investment firm, assuming you have really done well in selling them.
Professional Networking. Many Chamber of Commerce executives, local business associations, Township, City, County, or State officials, or other local businessmen and women in your area may have working relationships in the private equity and investment capital space and may be more than willing to help introduce your company to them. You will need to get out on the "street" mix with the community and attend events that investors, influential clients, and gatekeepers attend. It's called professional networking. You may gain a few pounds, and wear out a pair of shoes, but it pays off. Don't be afraid to ask for an introduction or to pitch your deal thesis, business plan, or strategic opportunity.
Portfolio Companies. review and analyze the companies that the investors you are targeting have already invested in - in the past or present. Seek out these entities, their principals, and founders, and build a relationship with them based upon some common ground. then politely ask for their assistance. most people are flattered that you asked them to help and that you respect their judgment. "Play" to that appeal, but be 100% sincere, and you won't go wrong.
Remember, your objective is to get a solid introduction from a source that is trusted. Do your research well, and pursue this approach diligently, as you have a much greater probability of getting your business plan or deal thesis moved to the top of the pile. The introduction from a trusted associate of the investment group will clearly get you much more exposure than wasting your time calling or mailing investors directly.
Capital formation is just one component in building a business from a strategy, deal thesis, or business plan. So even though the networking model and the sometimes uncomfortable call to the folks we've referenced can stress you out a bit, in the big picture it is well worth the sweat equity and time on your part. In some cases, the best time that you've ever spent, as the new relationships can also last for years. You may actually become a future gatekeeper!
Our consulting team members are associated with the Amerivest Advisor's Council Amerivest Group, and they continue to provide support for businesses seeking viable 21st Century Solutions.
The author's team, the Amerivest Group is expanding its executive management affiliates and its consulting team to tackle the ever-increasing operating and financial issues of our times. Our professionals and capital team will be sharing our experiences with you on this page and will continue to volunteer our collective experiences. From venture capital solutions to the development of operating efficiencies, or the embracing of new technology like Artificial Intelligence or M2M services, future businesses will have to adapt to an ever-changing and competitive global economy and marketplace. Business solutions today must address capital solutions for growth, operating efficiencies, timely evaluation and adjustment of your business model to adapt to the evolving global economy, as well as the qualitative aspects of your product or service in a growing competitive environment.
The Amerivest Advisory Board will be directly addressing these issues in many article forums, and how you can approach solutions yourselves, without hiring a high-powered consultant. We will provide our collective advice, and feel free to contact us so that we can point you in the right direction.