When looking to raise funds or get acquired, entrepreneurs look out for investors that could help them in several ways including the network/connections that they could leverage, experience or mentorship in their target field, and most importantly, the monetary investment that they’re willing to make. This is important to an entrepreneur because it means that this investor/acquirer believes in their dream and the business, and is looking to support it. But the question in most entrepreneurs’ minds now is, what is the investor looking for?
Here are several factors that an investor – or an acquirer – will evaluate when looking at a company:
The Founder(s) and the Team
As an entrepreneur, you are looking for the investor who’s the right fit for you and your business, and investors are essentially looking for the same in you and your team. They want to evaluate your passion as a founder, the quality of the management team and employees, as well as, the attrition rate of the company (a good attrition rate = <10%).
The Right Focus
Investors invest in businesses that are the right fit according to their investment portfolio, and acquirers acquire businesses that are the right fit for their M&A objectives, which could be acquiring capabilities, markets/geographies, or customers. Go through the investor’s/acquirers’ investment portfolio/previous acquisitions to understand their focus, as well as evaluate whether your company is focusing on the right technologies and trends.
Significant Growth Potential
Investors, or acquirers’ are looking to invest their money especially because of the return that the business may generate, and so it’s necessary to show that you have a clear understanding of the market and/or the niche, the competitors, and how your growth strategy might compare to them. The company’s current revenues and margins, and how you plan to increase them would reflect the growth potential of the company.
Showing investors/acquirers’ that you know not just your competition but also your competitive advantage(s) can convince them that you could, indeed, build and sustain your business – these could be any patents you hold, products you have, the relationships that you hold in the industry to be able to have the right partnerships, or IPs or frameworks that you’ve built to provide more efficient services
The traction that you have in the market – a demonstrated ability to sell the product or service – is of paramount importance. In IT, investors and acquirers will look at the number of customers you have, how many of them are repeat customers, what is the ticket size of your top customers, and what your margins are like (and whether and how they are increasing), among other factors.
Since investors are looking at the ROI that they will generate when investing in a business, they want to know the answer to two questions: one, how much do they need to invest and two, how much will they get back and when will they get it. You can know more about exit strategies here, especially from the perception of an investor.
There are various metrics, factors and trends that are different between tech vs. non-tech and product vs. services businesses, and especially so in the new, changing landscape of the IT industry. If you’d like to know more about the factors and trends that influence investing and acquisitions in the IT space, join us for a webinar on What Investors Look at while Acquiring/Investing in IT Companies.