Although the growing venture capital market in Australia has provided many businesses with a viable alternative to their regular sources of funding, some are still unable to prepare and deliver an investment proposal that sticks and sells.
The concept of becoming "investment ready" has long been put aside by entrepreneurs just trying to do what they do best - run their business. If only most businesses considered tomorrow's growth while moving up today. They would find that they not only prepared an investment-ready company, but are more likely to think about and seek the funding before they actually need it.
The competition for the growing $1 billion venture capital market in Australia is tough, hence compelling and proven business models with the right team go a long way.
Ten key elements to consider when becoming investment ready are:
1. Hire help - obtain assistance for the facilitation of the planning and execution of capital raising.
2. Quantify and understand your market - through key and independent market research.
3. Implement strategic planning - develop a clear vision and an action plan to implement strategy and ensure you get it there.
4. Management team and key staff - ensure they are qualified and make a compelling team.
5. Seek out strategic partnerships
and clients - proving the company's credibility.
6. Prototyping or proof-of-concept projects - to illustrate that technical risks have been considered, leaving commercial risk as the most pressing issue to success.
7. Development of key concepts about the business - which can stand the analysis of knowledgeable third parties.
8. Finalise a credible business plan - which shows how capital is to be used and the financial returns available within a financial model.
9. Agree on one or two clear exit strategies for all stakeholders. If the exit is to be different for some shareholders, this should be clarified in the early stages, thus avoiding any conflicts.
10. Identify one or two independent professionals with the ability to actively participate as future directors.
The strategic business plan, its exit strategy, vision and realistic financial projections should show funding stages, application of funds and the rate of return to incoming investors. This will dictate any prospective investor's interest.
If the internal rate of return (IRR) is greater than 70 per cent compounded per year, it is possible the forecasts are not accurate. Further analysis is required to establish more realistic expectations from your business.
If the IRR exceeds 35 per cent, a venture capital investor may be an option to consider. If you need over $2 million and the business projections are accurate, you may meet their stringent criteria. Targeting venture capital sources must be done carefully. You will not get anywhere by offering a biomedical venture capital firm a telecommunications investment.
If the IRR exceeds 25 per cent, other options are available. High net-worth individuals (or "business angels") or strategic investors offer the opportunity of obtaining an investor with a strategic involvement in your business.
If the IRR is less than 25 per cent, one alternative to consider is an early merger or trade sale to an industry player that can add further value to your opportunity. This alternative is often overlooked.Claudia Huertas is executive director of investment banking at Australian Consulting & Capital Partners. reach her at firstname.lastname@example.org