With so much strong investor interest in growth tech businesses, what kind of questions should those companies ask potential investors?
In just 12 months the coronavirus pandemic has accelerated the trend of digital transformation by nearly half a decade. Tech businesses had to scale quickly, and many were looking for investment to meet market demand. Tech businesses also proved their resilience during last year’s market shock, meaning investor interest in growing tech businesses was strong.
With that in mind, ECI Partners, the leading growth-focused private equity market, now shares the top questions tech CEOs can ask, to help guide them in choosing the right investment partner.
Does the investor have relevant expertise in the subsector?
Almost any investor will generally invest in the tech space, however, if you are looking to benefit from your investor’s shared experience and expertise, the questions you ask should focus on the subsector level, for example, SaaS, IoT, connectivity etc. Experience in this depth means not only will they have a better understanding of the challenges and opportunities facing the sector, but they can also reach the ground running on the first day without having to spend a lot of time in understanding the details of the business model.
How do they support you in implementing your growth strategy?
There are many strategies an investor can take to support your business in implementing a growth strategy, so it’s important to decide what you want for your business to help you choose. For example, some investors may bring in experts on a project basis to support where needed, while others may offer strategic support throughout the length of the relationship.
Another consideration is how the available support is set up-do they have internal or external third-party resources in place? If so, how do investors manage that relationship – is it a hands -off approach, are they working with your existing support structure, or will they put together a set roadmap for your business to follow?
When you understand that how runs the investor, you can start drilling into detail such as what assistance is offered – including specific details on M&A support, People and Talent or Tech and Data.
Meeting with investors can feel like an excess as most have some version of the ability to add value, but getting rid of what it really looks like on a daily basis will help you. to distinguish between them.
Can the investor support you on an international level, if needed?
Whether you’re seeking to scale globally, now or in the future, it’s important to know if an investor has on-the-ground support, network or contacts available to meet those ambitions.
Scaling into new countries can be a difficult transition point for many companies and leadership teams, so being able to leverage the right experience can help risk your strategy. By asking about an investor’s direct experience in supporting and / or expanding companies on a global scale, you can assess how often they contribute to it, and the approaches work for their other investments, e.g. Getting a local business.
What is the exit strategy?
A good partnership means aligning with future growth from the start, so be honest about your future plans at this stage. If you want to IPO the next exit for example, get a feel for investor support for that exit strategy.
You can also have a view about the timing of your next exit, and whether you want to be there for the next stage of the journey. Getting under the skin of your motivations and ambitions, and theirs will help ensure a successful partnership.
What references can the investor provide?
This is the key: you shouldn’t take what your investors say about how they want to work at face value. You need to talk to some of the other businesses they support so you understand what it’s really like to send them to the blackboard.
Don’t just ask about what help the investor provided, but also how they acted on a challenge. It’s important to be able to feel what people want to work on; a strong partnership is not just who will help you grow, but who is on the journey with you.
David Ewing, Managing Partner at ECI Partners, commented:
“For businesses with quality tech there is no shortage of interested investors, but for many founders and CEOs, it can be difficult to know the real difference between them, which creates uncertainty as to whether their decision is right. As well. make sure you find an investor who is valuing the business properly, it is important that both parties have laid their cards on the table from the beginning.By stating your near and long term ambitions as well as how you want it to work the partnership, you will quickly reduce those aligned with your interests and culture.
“Both companies need to work together to make sure they maximize the opportunity at hand, so you need to think of that person around your Board table, and fully aligned with the goals for creation. of value to your business. “
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of knews.uk and knews.uk does not assume any responsibility or liability for the same.