What are the key elements investors are looking for in your business?

What are the key elements investors are looking for in your business?

… And how to provide them with these!

When a business prepares for a meeting with new investors, they often start with the balance sheet and the business plan. Just showing the financial information will not satisfy the needs of the investors. We discussed this in one of our recent webinars where we invited the VP Investor Relations of Barco to talk about what impact investor relations can have for your business. It showed that numbers need to be accompanied by a business model and more importantly its future prospects, the market growth and the company’s ability to generate revenue from its initial customer base, all tied into a powerful equity story.

How to set up an intriguing equity story? This equity story should encorporate 3 main aspects to be able to convince a critical investor community: A good presentation of your products, a realistic view of your market and the ability of the management of the company to make the business a success. In other words: a convincing strategy!

The market 

One of the very important aspects of your equity story should envision the market you are or are planning to operate in. Does it have a clear potential for your company and its products? Investors will typically look at the type of your market. Are you operating in a rather young or mature market? What about its size? Are you bound by language or a specific geography or are you able to dive in to a broad international market? The better you have defined and envisioned these aspects, the more pursuasive your equity story. It is important here not to only base your story on qualitative aspects, but also on quantitative aspects, after all numbers do speak louder than words. Market research is one of the important notions to get insights, but this will typically only deliver qualitative insights. Look for methods on how you can quantify past market trends and how they affect your business today, and how they might affect your business in the future. We’ve talked about this in one of our past webinars, watch the recording here.

Once you have defined what is really driving your market, you need to trigger your investor audience in the right way. Which aspects can help you? One of the main aspects you should definitely be talking about is your projected ability to generate cash and recurring revenue within the market.  Part of that is showing which industries you are targeting. Some markets are more fashionable than others. Currently, Software as a Service (SaaS) and consumer markets driven by smartphone adoption are two of the most interesting. Make sure you are able to link your equity story, either directly or indirectly, to a major market trend in order for it to be more appealing!

The products

Another corner stone of your equity story is the presentation of your products. Define and segment which products are important for your business (a good white paper that explains how to make a good segmentation in your products can be found here) and show how they can contribute to the success of your company and how they create value for the shareholders and possible future investors.

What types of products do venture capitalists like to invest in? That is a question you might (and should!!!) be thinking of when putting your equity story together. For sure products or services that are innovative and have a broad geographic potential are interesting to invest in. Products that create extra value and which fulfill a certain need in the market, which are scalable etc. should be on your radar too.  On the other side, a me-too product or one without a disruptive idea will not be interesting even if you have good financial performance today. Ideally, your business idea and products will be both exciting and original, with the capacity to radically change existing markets and which provide an answer to a need!

All right. We know. Not Easy! But it is key to really invest in your equity story and make sure that you stand out, in order to find the capital to invest in your business.

The ability of your management

Last but not least, perhaps even the most important aspect of the equity story is the quality of your management. Besides having a great idea, a great view on the market you’re targetting and a good distinction in which products can help you grow your business and can help to create value, the uttermost important is the ability to make it happen. The mindset of your team, the mindset of the management is crucial for investors to believe they will see a return on their investment. A clear market opportunity is not enough.

How to create trust with investors? Of course the potential of your products and markets should be clear for the investor community, but also the capabilities of your managament and teammembers are valuable to express. For example businesses that have successfully launched innovations in the past will have more credibility. Individual expertise and experience of your teammembers can create extra value. Above all the management team should be able to demonstrate its vision of the market and should show the right amount of motivation and energy to build the new business or expand existing business.

Taking these three components into account, the equity story reaches far beyond the financial information and the product idea. The strength of your business doesn’t lay in the balance sheet, it’s in your vision, the business model and its potential to create value for investors in a way which they can believe. Make a difference by showing your vision not only based on qualitative research but support it with quantitative information. Curious to hear what an expert has to say on this? Watch our webinar here.

 

2018-07-04T16:13:34+00:00

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