Do we really want external investors?
I work with technology and software CEOs that want to speed up their international revenue generation efforts.
As we explore the options for accelerating the race for global market leadership, external equity funding always rears its’ ugly head.
Why do I call external equity funding “ugly?”
If we want to get funded then we must start thinking like investors
It is very difficult to get access to other peoples’ money.
If we put ourselves in the shoes of an investor and spend a couple of hours writing down how we would qualify someone approaching us for access to our money, then we will most likely come up with some of these issues:
- How will we ensure a steady flow of qualified investment opportunities to choose from?
- Will we reject inquiries that are outside our comfort zone?
- Will we do seed projects or will we prefer post-launch venture investments?
- Or will we rather do mezzanine or equity investments?
- Will we invest alone or do tag-along investments?
- What level of return will we be looking for and how soon?
- How will we decide when to invest or not?
- What role will we play in the companies we invest in?
Are we eligible?
Although external funding certainly can accelerate our race for global market leadership we must understand the fundamental premises:
- It requires substantial effort driving the process
- It is not available to all types of business models
- It is not available to all management teams
- It may cost us our jobs
Can we do the sales job?
Most requests for external funding fail because they never manage to get the attention of a potential investor. Either they are utterly unprofessional or they fail to navigate through the personal networks to get the recommendation required to secure enough attention to be even considered by someone. Often they suffer from both.
Getting external funding is a time-consuming job that requires following a (somewhat) well-defined documentation process AND a not so well defined sales process of getting access to the right (those that operate in our space) investors and navigate the process to its’ final conclusion. The time required to drive this process must be taken from the time we would otherwise use in driving our business. Can we keep up the momentum and meet our KPIs during the process? Because if we cannot then our business will suffer and our negotiation position will deteriorate.
Is our business model eligible for external funding?
Professional seed and venture investors know that not all their investments will be successful. They know that most will fail and they therefore only invest in business models that have the potential for scaling fast and big. These days that means global market potential and it means potential for winning the top position in its category.
Do we have what it takes to drive the journey?
Professional investors know that no business plan survives the meeting with reality. They know that navigating the journey to provide a return of at least 10 times their investment over a five year period requires a management team that can execute, learn, foresee, react and do what is best for THE COMPANY. Do we have that management team in place? Because if we don’t they will turn us down until we have that fixed.
Are we prepared to step aside?
With external money comes giving away control. The more we need the money the more control we have to give up. As the money starts working and our company grows it may turn out that we are no longer the right person for the job as CEO, CTO, CMO, CFO etc.
Are we prepared to put the interest of the company above our own personal interests? Very few people possess this quality and if the meaning of our life is to be the CEO of our own company then we may have to start another one because our external investors will always protect the interest of the company first.
The pretty face of external funding
If we believe that we have what it takes, then embarking on an external funding project can do wonders for our business even when we are turned down or we choose to turn down the term-sheets offered.
The process will turn all the stones in our business (model and environment) and leave us much sharper than before. All the analyses and documents we develop through the process can be used productively in our current business. The current shareholders and management team will be forced to go through an alignment process weeding out undisclosed and unrecognised differences and perceptions of our ambitions, business model, objectives, strategy and plans.
With fresh money in the bank, we can now accelerate the race towards global market leadership.