Negotiating with potential investors
3 likes556 views
This document provides guidance on negotiating with potential investors. It outlines the typical investment process timeline of 3-6 months and factors that can cause delays, such as an investor's schedule or lack of due diligence materials. It recommends being prepared with documents, exceeding expectations, and disclosing potential issues. The document also discusses confidentiality agreements, investment committees, financial models, and conducting thorough due diligence by providing all requested documents and materials. Overall, it advises finding the right investor fit and having open communication throughout the process.
Negotiating with potential investors
- 1. Negotiating with a Potential Investor February 17, 2010
- 2. Overview
- 3. Preparing for the Investment Process and Due Diligence Expectation
- 4. While the investment process duration can fluctuate wildly, the order of this timeline is fairly consistent with most investors. In general, you can expect to spend between 3 and 6 months from the initial investor conversation to closing. 4 © 2010 SJF Advisory Services
- 5. The timeline will change substantially depending on a number of things. Here are some factors that can adjust the timing and ways you can address them. Factors Stalling Ways to Stay on Track or Accelerate Process Process Investors’ own schedule • Create competition among investors and priorities • Indicate that you may not need capital 6 months from now or valuation expectations may be higher Waiting on anticipated • Exceed financial projections milestones and financial • Win new business or opportunities that were not originally in plan expectations Lack of access to due • Have all due diligence documents ready and well organized diligence materials, • Be prepared to provide list of customers, vendors, past employers and reference sources partners for reference calls Surprises that spock • Anticipate potential hiccups over next six months and disclose to investors investors • Better to prepare them with potential bad news than catch them off guard Term sheet and investor • Do your own due diligence on the value of your business document negotiations • Hire qualified counsel to help navigate terms 5 © 2010 SJF Advisory Services
- 6. Confidentiality Agreements (CA) / Non Disclosure Agreement (NDA) Investment Committees, Investment Recommendation Memos Syndicates, Lead investors Investment models, IRR analysis Pre Money, Post Money 6 © 2010 SJF Advisory Services
- 7. Will send out formal check list to call participants Diligence area Documents/Information required Management/ Resumes for management and board, personal references, board packets/meeting notes Board Market Sales pipeline, qualitative discussion of current and expected products and services, competition matrix, sales and marketing materials, customer and supplier contracts, customer references Technology, IP All patents and IP review, technology development roadmaps, past or pending IP disputes Production, Inventory,& asset lists, efficiency improvements needed/equipment upgrades required, Operations production capacity with current facilities, quality control standards Financials Historical IS, BS as detailed as possible in Excel format, most recent audits/tax returns, projections for next 5 years IS, BS, CF, detailed uses of cash and future capital required, AR, AP schedules, detailed information providing back up for cost assumptions Employment Employment contracts/non-competes, recent payroll report, employee work and training manual, retention data, organization charts with open positions, recruiting plans Legal Incorporation docs, cap table with all previous round investment documents/term sheets, bank financing documents, any other legal docs, insurance coverage 7 © 2010 SJF Advisory Services
- 8. Full disclosure - send everything you have; easier to supply everything than to weed through materials Don’t recreate the wheel – if you have already prepared a document for internal use, your board or another investor, just share that Face to face meetings often more efficient - Many questions are best answered with in person meetings instead of document overload; suggest investor spend 1-2 days at your office talking through their prepared list of questions Let them be a third wheel – copy them on internal company correspondence, let them dial in to sales calls (when appropriate), invite to marketing events and trade shows Be easy to work with – Develop a good rapport with the investor from the beginning and the process and term negotiations should be fair and transparent 8 © 2010 SJF Advisory Services
- 9. Finding the right investor The investor who offers the most money or the investor who takes the least amount of ownership interest is not always the best fit. Things to ask: Does the investor have experience in your industry? What value added experience would the investor bring to your organization? What is the investor’s time horizon before exit? Does the investor have the capacity to infuse additional capital as needed? How does the investor plan to interact with the business Things to consider: Research background, check reference, etc. • Talk to business owners who worked with the investor in both successful and unsuccessful businesses • Talk to investors who have invested in deals alongside the investor • Evaluate core competencies • Past history/track record • Background check on key principals of firm • Airplane test Listen to questions investor asks Conduct a clear conversation about personnel requirements Negotiate without emotion The ideal investor: Shares your vision to grow the business Brings more to the table than money • Copyright © 2010 ICIC – 1
- 10. Negotiating with a Potential Investor