Is equity investment right for me?
At Lion People Global we talk to many investor-backed technology companies which are at different stages of funding who have been successful in raising capital and generating enthusiasm for their products and services.
If you believe you are onto something special, with the potential to be huge and transformational, then going down the investor route can bring the type of funding that will allow your company to make that giant leap to the next level in just a few short years.
And if you go down the investor route, the investor takes a stake in your business and expects a substantial return on investment.
Most readers will be familiar with seed funding, such as Series A, B, C etc.
With Series A and Series B funding, some companies’ capitalization tables become quite crowded and it means that their boards are also sometimes challenging to manage because there is a high number of people involved, who all expect to share of the profits. And so the company has diluted its control a little bit.
The next stage in private equity funding is when a private equity firm takes a significant stake in a company or effectively buys it out.
This means that as the new owners, they now set the expectations on where the company should go, how to create value, how to create a profitable exit strategy, and so on.
This is why private equity always involves a certain degree of tension because sometimes the investors may not agree with the views of the management team on the company’s direction.
As well as this, the level of scrutiny and the level of granularity expected in the reporting suite in KPI reporting sometimes can be quite excruciating.
So this is why this is not a route to be taken lightly and if somebody decides to go down the investor route, you need to brace yourself for all of this.
According to Olga Blasco, M&A Principal Partner at Lion People Global, for companies that already have experience raising capital and are looking to go to that next level or sell to Private Equity, it is important to “embrace discipline” and “expect scrutiny”.
“I think that you need to be ready to embrace discipline at all levels and expect a lot of scrutiny because having a great vision for a great product or great services, I think it’s not enough,” Olga says.
“What’s most important is that you have a business plan that generates confidence by showing that there is growth and that maps that growth very precisely, showing a journey to profitability.
“But growing at any cost, like we’ve seen some companies trying to do – it’s too risky.
“Because right now there is an appetite among investors for resilience and well mitigated risk.
“I think that companies that are looking at the same type of aggressive growth as they were looking for a few years ago, and they put that in a business plan that is not believable, should review and should really think hard, especially if they’re going to go and seek investment.”
If you want to know more about this area, visit Lion People Global’s website where you can watch back our M&A Talks series of videos and fill out a questionnaire that entitles you to one hour’s free consultation on getting a LSP or language tech business ready for sale.