Top Factors that Attract Investors to Young Companies

The top factors that entrepreneurs should strive to include in their business plans to raise money fast

Q.   I am a highly skilled enterprise software developer. I have an idea that I believe is patentable and has internationally market potential. Originally I am from India and plan to work in India and in the U.S. What technology-oriented venture funds might be amenable to supporting operations in both countries?

A.   Every once and awhile I get a letter like yours that reminds me of how I used to review new investment opportunities in investment banking and venture capital. When time was scarce and the pile of business plans to read was high, it was more productive to first do a fast scan for positive investment fundamentals, rather than read business plans cover to cover.

What do I mean by the term "investment fundamentals?"

Positive investment fundamentals are business factors or attributes that tend to reward shareholders. Some fundamentals apply to the specific company's operations while other fundamentals apply to broader market conditions. There are positive investment fundamentals just as there are negative, stay away investment fundamentals.

The more mental check marks of positive fundamentals investors identify from presentations, executive summaries and business plans, the more likely entrepreneurs will receive invitations to talk further about the company's plans for growth.

So far, you've presented several positive fundamentals.

• Hot industry. Information technology solutions applied to businesses is, in general, a growing market with high demand for innovation. The profit margins tend to beat traditional manufacturing and service industries and there is the potential, as a software company, to generate multi-year "recurring revenues" from service contracts and upgrades. This makes it easier for investors to project revenue and earnings growth. Give yourself several check marks for pursuing information technology or "IT."
• Lucrative exit. Venture investors don't usually make money until their portfolio companies are sold or go public. IT companies have a favorable history of going public and trading at earnings multiples that exceed the S&P 500 index. Investors like this. Also, if the IT company doesn't go public, there is a good chance that investors will still receive 4 to 10 times invested capital from a corporate buyer.
• Global market. The larger the market size of a business, the greater leeway the young company has to gain market share. Pre-revenue companies need to prove strong market size to attract investors. Once again, you get to give yourself a check mark for another strong fundamental on your side.
• Patent advantage. Investors prefer companies that have several ways to protect their innovations from competitors. Patents also tend to build the overall financial value of a company. Give yourself a check mark.

Now to your question about venture funds. Yes, I'd say there are several dozen funds that might be interested in your business plan. As a starting point you can approach US-based venture funds that maintain offices in India such as Sequoia Capital, Artiman Ventures, IDG Ventures, Matrix Partners, New Enterprise Associates, or Walden International. It's important to note that some of these funds invest in startups, while others require proof of concept viability, revenues or earnings before taking a serious look at a company. Another venture fund that is active in India is Softbank's Asia Infrastructure Fund ("SAIF Partners").

But just because a U.S. fund doesn't operate an office in India, doesn't mean there isn't a high level of interest in companies that operate in developing nations such as India or China.

Lastly, the caliber of management is the investment consideration that trumps all other business factors. In India or the U.S., make a commitment to surround yourself with talented advisors and staff. You can do it!

Do you want to find reliable investors for your business? Write to Susan at susan@takecommand.org for great funding references and tips especially designed for startup entrepreneurs, sole proprietors and fast growth companies.

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