How to Raise Private Equity and Venture Capital
In a very competitive equity market, how do you position your business to attract the capital you need to survive and thrive?
Private Equity (PE) in Australia remains one of the key sources of funding for small to medium sized enterprises and a key driver of economic growth.
In the current economic climate, raising traditional bank debt to finance business growth or succession has become incredibly challenging, and as a result many business owners are turning to PE firms.
This is not surprising given that the PE and Venture Capital (VC) market in Australia has grown significantly since 1998.
While the PE and VC market experienced a period of consolidation during 2010, investment levels stayed relatively resilient despite the general uncertainty.
To put this into context, the AVCAL Ernst & Young 2010 Yearbook indicates that ‘Private Equity and Venture Capital firms invested $2.4 billion in 2010 across 178 companies’.
Of the 178 companies invested in, 39% were start-up or early stage companies, 27% growth/expansion and 10% buyouts.
The sectors that received the majority of investment (around 70%) in 2010 were: Business and Industrial Services, Consumer Goods and Retail, and Energy and Environment.
With more than 83 active PE and VC firms in Australia, it’s important to know how to position your business successfully to attract the necessary capital in this very competitive equity market.
Here are four tips on how to approach Private Equity and Venture Capital Investors:
1. Understand their sector experience
PE and VC firms usually have specific and in-depth expertise in a particular industry sector. There is no point making contact with an investor who is focused on technology start-ups when you are trying to pitch a service business.
2. Invest in face-to-face time
Potential investors like to know who they are dealing with, and this is best communicated in person. It gives both the investor and the company time to assess if the relationship is going to be sustainable. Remember – the PE or VC investor is going to be a significant partner and stakeholder in your business.
3. Know their transaction size
Most investors will have a typical or preferred transaction size, which can range from $1 million to $20 million. Understanding the transaction appetite of an investor could minimise wasted time and effort on both sides.
4. Engage a trusted advisor
If you are uncomfortable or inexperienced in presenting to sophisticated PE or VC firms you should engage a trusted advisor to assist you in the process. We have undertaken a number of these roles and have found that business owners and management can continue to focus on running the business while the necessary material for the PE or VC firm is professionally prepared.
Many PE or VC firms won’t schedule a meeting unless the company seeking funding can provide a two page executive summary and a 15-20 slide presentation that conveys the business.
As a minimum, the information required by the PE or VC firm at the initial meeting includes: company vision, market size and growth, competition, product/service, business model, management team overview and financials.
Vantage Performance has strong relationships with many PE and VC firms and we are experienced in positioning companies to attract the necessary capital.
As always, preparation ahead of any interaction with a Private Equity or Venture Capital firm is imperative to attract their attention.
After all, they are buying into your business with the capital they provide.
Investing time to do your research on the PE or VC firm and having the necessary material ready will increase your opportunity to attract capital and stand out in a very competitive equity market.
Vantage Performance is Australia’s leading national performance improvement and turnaround firm with proven success in solving complex business challenges.