Tip of the Spear Ventures

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10 Criteria Every Investor Wants to Know

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The Point: We see a lot of investment opportunities (sometimes too many!) However, we rarely see “quality” investment opportunities cross our desk. It’s not the colors of the presentation, the font, or the graphics used that I’m talking about regarding quality. What I am focusing on is the following 10 criteria every investor wants to know… Enjoy!

Tip of the Spear 10 criteria every investor wants to know
https://www.slideshare.net/TipoftheSpearVentures/tip-of-the-spear-ventures-pitch-deck

Every once in a while, a presentation is made to us at Tip of the Spear Ventures that makes us stop. Similar to the social media attention grabbing headline or video, these presentations make us want to know more about what the entrepreneur has going on. What are the criteria that most often make us stop and take notice?

What follows are the 10 criteria every investor wants to know (and what every entrepreneur should put in their presentation deck):

OVERVIEW

Simply put, the overview is the starting place to grab investors attention. Who are you? What are you about to do that’s great? Why should we look at page number two in this presentation? Every investor will want to know a high-level overview of what you’re doing (briefly!)

ELEVATOR PITCH

You have 30-seconds in an elevator to tell the investor what is so special about your company. Can you do it in 30 seconds? Will the investor know what you’re talking about (or are you too deep in the weeds)? Every investor will want to know in short/concise fashion what you’re working on.

TEAM / ADVISORS

More times than not, we’re looking to invest in people. So who are the people that are directly / indirectly involved with your initiative? What experience do they have? What are they doing to add value to the organization? Every investor will want to know who comprises the team and advisors to the team.

MARKET

Is there really an opportunity, and more important is the solution to the opportunity going to have some redeemable quality (i.e., $$$)? Every investor will want to know what the size of the problem is, as well as the solution.

BUSINESS MODEL

Will you offer a demonstration (not during the pitch presentation, but as a part of your business model)? Every investor will want to know how you plan on making money. Will your revenue source be business to consumer (B2C), business to consumer (B2C), or business to government (B2G)? Will your business model consist of a one-time sale, recurring revenue models (RUNDLE!), and/or rely on affiliates? Every investor will want to know what your business model is.

RESULTS

Are you/your venture pre-revenue (a nice way of saying we haven’t made any money yet — zero)? Are you post-revenue, and if so what have the financial and other key performance indicators (KPIs)? Every investor will want to know what your results have been and what you anticipate them to be.

COMPETITION

You probably will not be operating in “blue” water (meaning little/no competition). So if you are operating in “red” water (with competition), who are your competitors? What are the results your competitors are accomplishing? When you compare your offering to that of your competitors, how do you stack up? Every investor will want to know about the competition.

EXIT STRATEGY

I’ve been told that exit strategies do not need to be spelled out — and I’m not certain why? We always want to know is this a “build/hold” or “build/sell” strategy? If it’s targeted to sell, what and when is the exit to occur? Every investor will want to know about your planned exit strategy.

CAPITAL REQUEST

You are probably pitching or presenting your company to raise capital. If so, how much are you looking to raise? Upon successful raise, what will you do with the money? Most important, what can the investor expect to get for their investment? Every investor will want to know your capital request.

CLOSE / Q&A

If the presentation model of “Tell them what you’re going to tell them, tell them, and tell them what you told them” holds true, bring the conversation home with a strong closing. Always leave time at the end of your presentation for questions and answers. Nothing is more frustrating for an investor to not have time to ask questions — they will typically not hunt down the entrepreneur afterwards to ask. They also might ask the same question, or the question that gets asked might be the one you answer with the reason why investors decide to invest. Every investor will want to know how you close and have time for Q&A.

SUMMARY

In this post, we’ve explored the “10 Criteria Every Investor Wants to Know.” Follow this guide when you’re searching for capital, looking for support, and/or launching your entrepreneurial talents.

Sam Palazzolo

5 Ways Coronavirus has Changed Mergers and Acquisitions

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The Point: The COVID-19 pandemic has altered our expectations of mergers and acquisitions. If speed kills deals, and the coronavirus impact on mergers and acquisitions was not spared, the swiftness of doubt and uncertainty inflicted has shifted business values. As a result, we’re seeing mergers and acquisitions in a new light. So in this post, we present 5 ways coronavirus has changed mergers and acquisitions… Enjoy!

5 Ways Coronavirus has Changed M&A

There are five important shifts in mergers and acquisitions as a result of the coronavirus, which will permanently change the business of merging and/or acquiring businesses:

Change in the Understanding of Employees

Businesses have realized the value of their front-line teams in getting stuff done. Together with the efforts of the team members — many of whom are often at the lower end of the pay scale — many companies could not have lasted through the pandemic. So, how are individual perceptions of meaningful work and a special calling in some specific jobs influenced by the Covid-19 pandemic? It’s only when a crisis hits that we can identify the attractiveness of some functions — while other functions tend to lose out to those identified as low or dull. Ask yourself, who’d be the Most Valuable Player (MVP) for you now — someone who produces the materials/tools/information which you require or your C-Suite leader who coordinates/reports on? Where exactly is the value now? The answers to these questions pose serious implications for M&A.

Shift in Culture Priorities

Being kept apart from friends or family has shown team members where their true priorities lie — and it’s not work. Our relationships to the jobs we conduct have changed as a result of the pandemic. If you asked any part of your team what matters today, it will almost surely be family and their health. That’s where people wish to spend the majority of their time. When you realize that you could lose the people you love most, you see what actually matters. M&A will need to take and work with the changed priorities of organizational culture and the team members because when it comes to a choice, work will not come out on the top.

Change in Empathy and Compassion Expectations

One of the biggest adjustments demands M&A adapt to the individual’s with empathy and compassion. Whether they are in the workplace or working from your home, M&A professionals will need to use their own emotional intelligence (EQ) to understand each person’s situation, pressures, priorities, and values. No longer can M&A think of the organization’s team as a single thing or object — and this can and will be hard. More than ever, M&A will need to reveal themselves as people and build relationships with their own folks. Honest, accurate discussions about work and life will improve connection. Empathy and compassion will solidify it.

Change in the Power of Leadership

Having remote teams has meant leaders needed to step back from the job and let their people manage themselves. The M&A firms who gave their teams some autonomy and decision-making are the ones who have had the best results. It makes sense. To retain power, M&A will be to increase agility and decrease costs for the company in the long run. When you have the right people in the M&A function, don’t be afraid to show your faith in them? It’s time to let go of control over the particulars of people’s work and instead, begin to support them. Be certain they have everything that they need to make the ideal choice and get the job done.

Change in Attention and Direction

If there is one thing we learned during this time, it is that plans can be shattered at the drop of a hat. While planning is still important — Since you have to understand where you’re headed — it’s the results leaders need to concentrate on instead of the journey. Your purpose in M&A is to act as a driver, and that’s what’s going to maintain mergers and acquisitions strategy leading to results — or lack thereof.

SUMMARY

I see a significant move from strategy or process-led mergers and acquisitions towards a more agile one. While we still value powerful and elastic M&A, there’s presently a heavy focus on agility at Tip of the Spear.

Understanding Mergers and Acquisitions Strategy

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The Point: When most people think about starting a business, they often think of starting from scratch — designing the business from scratch and making your own concepts and plans. But is this the right — or best — strategy for an entrepreneur? In this post, we’ll explore understanding mergers and acquisitions strategy… Enjoy!

Tip of the Spear Understanding Mergers and Acquisitions

This is actually easier than starting an entirely new company, as you have a known product to base your business around. However, buying an existing company can still help you get started on the right foot. Here is what you should know to get a lot out of your purchase. Read on for more information on mergers and acquisitions.

There are two ways to go about mergers and acquisitions (M&A). One way is through an all-cash transaction, which allows you to take over a majority of the assets of the other companies and you keep all of the equity. Another way to approach the process is by conducting a financial transaction, where you receive cash for a portion of the total equity. Both methods have different advantages and disadvantages, so it’s important that you carefully consider which option will be best for you.

The first thing to consider is whether or not there are synergies between the two companies. You want to be able to add to the strength of one company while keeping away from the weakness of the other. For example, buying a hospital that offers medical equipment to nursing homes could be a good move for both companies. However, buying a manufacturing company that makes products for the home repair industry could be a bad move for both companies. So the two mergers and acquisitions strategies have to be well thought out before you make a decision.

You also have to understand the benefits of the mergers and acquisitions. Some examples of these benefits include saving cash, leveling the corporate ladder, combining research and development, and better service to customers. In order for these benefits to be realized, you have to look at the costs of the transactions carefully. This means looking at both the direct and indirect costs involved with the transactions.

You should also determine the value of the acquired assets. You should compare the total assets acquired, including goodwill, to the total market value of the combined company. Remember that these purchases do not always result in absolute value. Sometimes, the actual net worth of the acquired business is less than the purchase price.

SUMMARY

In summary, the main goal of the acquisition and mergers and acquisitions strategies is to acquire a company that can provide a service or product that solves a problem for the buyer. One of the main downsides to acquisitions is the risk of acquiring weak companies that might not be able to support the obligations you have with them. Be sure to get all the facts before you decide on a strategy. Make sure you are familiar with all the terms before you enter into any agreements.

Business Acquisition Due Diligence – Accounting

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The Point: The world of mergers and acquisitions is fantastic, especially once you have an prospective organization under Letter of Intent (LOI). This time period is one where due diligence is conducted to confirm whether the organization is what it says it is. Especially important during this due diligence time period is the analysis conducted by an Accountant. So in this post, we’ll explore business acquisition due diligence from an accounting perspective… Enjoy!

For many accountants, business acquisition is an onerous and time-consuming process. It is not just the cost of purchasing additional capital or paying for legal assistance, that can be a drain on funds. The sheer complexity of mergers and acquisitions often requires a large investment in professional services in addition to time, dedication, and effort. However, many accountants fail to realize that the vast majority of mergers and acquisitions are performed by lawyers and accountants. This post will highlight some of the challenges accountants face in the process of business acquisition due diligence.

Due Diligence – 2 Primary Challenges

There are two primary reasons why accountants are the primary force behind acquisition activities. First, they have access to the appropriate legal information and personnel to make a knowledgeable purchase of a business. Second, they are well-versed in the financial statements and the business plans of both companies. In short, they understand the products and services that each company offers and the expectations from the purchase. Although these key assets are important, it is sometimes unrealistic to put such great faith in them when it comes to the complex negotiations that must precede a transaction. For this reason, it is vital that accountants remain neutral in their recommendations to the management regarding the proposed merger or acquisition.

In reality, most business transactions occur at a slow pace, with little or no external input. Therefore, accountants become involved only after significant due diligence has been conducted. The process may begin with a simple review of financial statements and company records to determine if the prospective acquirer is making a sound purchase or is entering into a deal with unrealistic expectations. This preliminary examination of the business’s records should not take more than a few hours, and is time consuming, but it is time well spent.

Accountants and Lenders in Due Diligence

When a company is in the process of obtaining financing, there may also be instances where the lender requires diligence in connection with the loan. Lenders are becoming increasingly educated about the benefits associated with acquiring an existing business rather than an entirely new one. As a result, the process may include requesting business information from accountants as a part of the due diligence process. Accountants may provide information concerning the companies’ credit ratings, operational revenue, and cash flow, as well as any positive or negative indicators that reflect on the business’s financial health.

Accuracy Counts in Due Diligence

For the individual who has entered into a business acquisition transaction, it is imperative to maintain accurate accounts in order to ensure that the transaction goes as smoothly as possible. Good accountants will have access to information that is rarely shared within a business acquisition firm. This type of specialized information allows individuals to make intelligent decisions regarding the purchase of a business. It will provide the acquirer with accurate information that can be used to determine the amount of funds needed for the acquisition and to determine if the business has the potential to increase profit and revenue. In fact, business acquisition due diligence is so important that businesses have their own internal accountants as well as outside accountants who are responsible for performing these tasks.

SUMMARY

Most business acquisition firms prefer to hire accountants who have previous experience in acquisitions as they know how to manage the due diligence process. Additionally, a business acquisition consultant should focus on developing relationships with other business acquirers to ensure that the due diligence process goes as smoothly as possible. Most consultants will perform all of these tasks on behalf of the acquirer. In fact, most will dedicate several of their business acquisition specialists to working exclusively with the acquirer.

Startup vs Acquisition – A Comparison of Two Entrepreneurship Models

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Often, when entrepreneurs ask the difference between startup vs acquisition, they are confounded by the differences and can’t make up their minds about which choice is right. They often think that there are clear winners and losers in terms of an entrepreneur’s success or failure. The truth is that there are subtle differences between startups and acquisitions. For starters, it’s not the size of the company that makes the difference between a startup and acquisition; in many cases, it’s the lack of a market or the size of the market that makes the difference.

Startup vs Acquisition

The differences between a startup and an acquisition vary primarily based on the size of the target market. A startup may be started to fill a need in the marketplace; that is, it was created to address a problem that existed in a segment of the population that had not been well served by established companies before. For instance, many new food stores started as franchises that expanded to meet the needs of a local market. In such cases, the company’s success came from its ability to serve a specific segment of the population.

The Acquisition

With acquisitions, on the other hand, the objective is much different. Buyouts are done primarily to acquire control of already mature companies with long-standing operating systems, market shares, and patents. While these companies may have the necessary attributes to be attractive targets for a startup, they are unlikely to have strong market shares or a profitable business model.

Sustained Growth & Profitability

An acquisition occurs when a business owner takes control of a company that is doing well in the market but lacks the ability to sustain growth and profitability. As the buyer, you typically don’t acquire a startup with the intention of developing it into a successful business yourself. Instead, you look for a business that can help you realize your financial goals. This can mean developing the company further to bring it closer to the goal you’ve set, or it could mean acquiring a company with complementary assets.

Startup vs Acquisition: The Key

The key to both startup and acquisition is finding the right partners. Acquiring a startup is easier when you purchase a successful company because you already know what it’s capable of. On the other hand, you’ll have a lot of work to do when buying an established business. Take for example the purchase of an organization (and we see this all the time at Tip of the Spear). At the time when the purchase was made, Company #1 was the largest company in their sector and had already demonstrated its ability to grow and profit. Therefore, making Company #2 in a desirable position to purchase/acquire Company #1.

SUMMARY

Because of the Startup vs Acquisition — A Comparison of Two Entrepreneurship Models, it’s easier for one company to acquire another company. By using a strategy for its acquisition, an organization can quickly became a dominant player in the industry. This type of acquisition will work best for entrepreneurs and venture capitalists with a proven track record in developing successful businesses. However, if you’re starting from scratch, it’s probably a better option to go for a startup rather than an acquisition (Don’t get me started on how hard it is though!)

Sam Palazzolo