How to win the investment race

It's a Darwinian proposition: the strong survive while the weak wither and die.

unlimited || COMMENT || BY ANDREW DUFF

To raise capital, entrepreneurs will take out new mortgages, borrow from family and friends and beg from the bank. When those sources dry up they usually turn to external sources – equity investors such as angels and venture capital funds.

The venture investment selection process is highly competitive.Sparkbox will probably look at hundreds of proposals in the search for high quality innovation and entrepreneurs with internationally-scalable solutions.

An entrepreneur is likely to pitch his or her concept to a number of potential investors - alongside a number of other entrepreneurs also seeking capital. At a typical pitch the entrepreneur might have 15 minutes to make enough of an impression to warrant further consideration.

It is crucial that the case they present is sufficiently robust and compelling to distinguish it from the vast number which will be dismissed. Investors follow a rigorous process deciding which to invest in.

These are six key attributes an entrepreneur seeking investment needs to really nail:

1. Tell us about you and your team. You cannot do everything yourself ,so the entrepreneur and initial team are the most important factor. Without an honest, knowledgeable, driven, experienced yet coachable team the opportunity is not commercially fundable.

2. The addressable market size and ability to scale is everything. Can you grow your company rapidly to revenues greater than $20 million in five years? Do you have the desire and execution capability to scale? Do you realise you may have to relocate overseas to achieve this?

3. Your product must have 'smarts' with a competitive advantage, trade secrets and preferably patents.

4. You must be able to clearly demonstrate the market pain and the solution. Have some validation by potential customers that the new offering is a ‘must have’, not ‘nice to have’. Have you made sales or can you get them, - and have you validated the solution with existing and potential customers?

5. Always consider the investment from an investor’s perspective and what the deal is in terms of runway, ownership and potential returns. Is the opportunity interesting enough to attract sufficient capital to give it the runway to get to the next fundraising event at a significant uplift in valuation?

6. Give a lot of thought to exiting the company, even before the investment is made. When might an exit occur? Who will purchase the company? Are those exit candidates actively purchasing similar companies now? What valuation methodologies are used to price exits?

There are superb ideas and innovation emerging from our universities and research institutes. But the key to turning these ideas into successful global growth companies is about identifying the right team, providing them the necessary skills and support and critically investment. It is the team – the founders and entrepreneurs – the savvy investor will focus on.

Andrew Duff is chairman of the Sparkbox Venture Group.