Finding investors for your business can be a daunting task. From meeting with potential backers, to preparing pitch decks and expanding your professional network, there is a lot to consider.

Whether you’re in the early stages of a new business, you’ve hit a plateau in growth, or you’re seeking outside investment opportunities that can help you take things to the next level, finding the right type of investor for your business is essential.

In this article, we’ll look at how you can find investors for your business, the different types of business investors, and the steps that you need to take to secure the right investment for your business.

Why investors are important

The notion of investors and equity financing has evolved rapidly over the last decade. Due in no small part to the mainstream fascination with ‘unicorns’ and start-up culture in the tech bubble of Silicon Valley, more business owners are now looking to outside investment to facilitate growth – and it’s not just tech start-ups.

Investors play a critical role in funding business growth by providing the capital and professional resources that help them to expand at a faster pace that they would be able to with their own capital. Without access to capital, it can be difficult for businesses to hire employees, purchase critical equipment and inventory, and invest in the appropriate marketing channels.

In addition to providing capital, investors can also bring valuable industry-experience, connections, and professional resources to the table. For many businesses, access to new customers and partners, as well as the ability to connect with key industry players and influencers through investors is an invaluable piece in the growth puzzle.

 

Why investors are important

Identifying your target investors

If you’re looking to go down the path of seeking investment for your business or start-up, then it’s important to determine the types of investors that you are looking to attract. Businesses and entrepreneurs should remember that their business is not going to appeal to all types of investors, which is why it’s important to identify their target audience for investment.

Different types of investors

Angel Investors

Angel investors are high-net worth individuals that invest in small companies and start-ups in exchange for equity in the company. According to the latest data from the Center for Venture Research at the University of New Hampshire, angel investments in 2020 in the United States totalled $25.3 billion across 64,480 entrepreneurial ventures.

Unlike a venture capital firm that relies on an investment fund to make business investments, angel investors make business investments from their own hip pocket. When compared to venture capital firms, angel investors are often more patient with entrepreneurs and open to taking a long-term approach to investments. However, like VC firms, angel investors want to see a clear exit strategy and path to profitability for their investments. 

Venture capital investors

Venture capital firms are investment companies that provide funding to start-up business that are demined to have ahigh growth potential. In exchange for their investment, VC firms will typically take an equity ownership in the company.

Venture capital firms will typically invest in early-stage companies that are not profitable but are instead buoyed by their potential to disrupt an industry and become profitable in a relatively short space of time.

According to the latest data from the National Venture Capital Association (NVCA), venture capital investments reached a staggering $329.9 billion across 17,054 deals in 2021 in the United States – roughly double the previous high that was recorded in 2020.

Some of the types of businesses that venture capital investors may choose to invest in include:

  • Tech companies
  • Software companies
  • Internet start-ups
  • Energy and clean tech companies
  • E-commerce
  • Agriculture and food

In addition to capital, VC firms also provide valuable resources such as mentorship, guidance, and professional networking that can help to fast-track growth.

Private equity firms

Private equity firms will typically invest in privately owned companies with a proven track record of success with the potential for significant growth. While some mistakenly use venture capital and private equity as interchangeable terms for private investment, there are some key differences that separate them.

Unlike venture capital firms that take a high-risk, high-reward approach to start-up investments, private equity firms tend to opt for ‘safer’ businesses with a proven market with the potential for significant growth with the right investment.

Some of the types of businesses that private equity firms invest in include:

  • Software and technology companies
  • E-commerce, retail, and consumer goods
  • Manufacturing and industrial
  • Healthcare and Pharma companies

Just like venture capital firms that typically have a target niche, PE firms invest in sectors where they have the knowledge and professional resources to help their portfolio companies to scale. Private equity firms will usually take a controlling stake in a company to make them more valuable before selling them for a profit at a later date.

Different types of investors

Crowdfunding 

Crowdfunding has become an increasingly popular funding channel for small businesses and start-ups that are looking to gain a loyal throng of supporters while raising early-stage capital. The latest data from Statista shows that the crowdfunding segment is projected to reach $1.1 billion USD in 2023 and continue to grow at a rate of 2.46% over the next five years.

The emergence of crowdfunding sites Kickstarter and Indiegogo mean that new businesses can now circumnavigate the traditional route of heading to the bank for a business loan. Crowdfunding will typically be structured in one of three different ways:

Rewards-based: Business offer rewards such as product discounts or early access to products when crowdfunding investors back them at an early stage.

Equity-based: When businesses offer equity in the company in exchange for financial backing.

Debt based: Businesses borrow money from a crowd of investors and then pay back the money with interest when the business becomes profitable.

Family and friends

As the name would suggest, family and friends’ investors are those that invest money into a business that is started by someone that they share a personal connection with.

According to a recent study by Clutch which interviewed 501 business founders in the United States, almost one in four (22%) of all founders took a loan or investment from their family or friends in the first 3-months of starting a business.

These types of investments are usually motivated by the desired to support a family member or friend and their entrepreneurial vision, rather than with the sole goal of financial gain.

Institutional investors

Institutional investors accrue the funds of investors and invest those funds on behalf of their members. Institutional investors invest in a variety of different assets including stocks, real estate, bonds, and private companies.

Some of the private companies that they might invest in include:

  • Banking companies
  • Insurance companies
  • Tech start-ups
  • Early-stage companies

Institutional investors may also invest directly in companies through the secondary purchase of shares or by participating in private funding rounds.

How to connect with potential investors

Once you’ve determined the type of investor that you are looking to attract, the next step is to put your business in front of those investors. Depending on the type of investor (refer to the list above) your method for meeting investors will be different.

Some of the ways that businesses can connect with potential investors include:

Networking events: conferences, trade shows, and other events that present opportunities to mingle with potential investors and discuss your business.

Online: Websites like Gust and AngelList have been specifically setup to allow business to connect with angel investors and venture capitalists. Outside of these platforms, professional networking sites like LinkedIn can open new doors and facilitate encounters with the right kinds of investors for your business.

Reach out to VC/PE firms in your area: Most Venture Capital and Private Equity firms in your area will have a dedicated section on their website where businesses can pitch their business or organise a meeting. Google “Private Equity/Venture Capital + your location” to find local companies that may be interested in investing.

Crowdfunding platforms: If crowdfunding sounds like the right investment channel for your business, then platforms like Kickstarter and Indiegogo provide an easy-to-navigate platform that allows businesses to pitch themselves to the masses.

Referrals: Word of mouth referrals from your network can be a powerful way to get your foot in the door with investors. Reach out to entrepreneurs or businesses in your network to ask for referrals or recommendations on securing funding.

how to find investors for your business

What an investor wants to know before investing

When it comes to private investing, investors will want to do their due diligence before putting their money on the line. Investors want to know key information about the company that they are investing in, the terms of their investment, future plans of the business.

Pertinent information that investors will want to know before investing includes:

Financial performance: A complete rundown on past financial performance, profit, growth, and operating expenses.

Business plan: A clear business plan helps investors to not only understand your business, but it also shows that you have taken the time to assess any obstacles that the business may face. Even for mature companies with a proven track record of profit, a business plan is an essential piece of information that potential investors will use to make decisions about funding and supporting your company.

Unique selling proposition (USP): When it comes to business, your USP is your competitive edge in the market. Investors will want to know the unique value proposition of your product offering and where it sits in the market.

Company management profiles: Investing in a business means investing in their management team, as such, investors want to know more about the management team and their track record for success.

How you plan to spend their investment: Depending on the nature of the investment, investors will want to know how their money is being spent and when they can expect a return.

Investment structure: Understanding their rights and obligations, what happens if there is a change in leadership, and how they can cash out (if required) are all important considerations for investors.

Exit strategy: Every business owner needs an exit strategy, and the same goes for investors. They will want to know what their exit strategy looks like and when they can expect to recoup their investment.

In addition to all of these points, investors will also want to know about the company’s valuation as well as projected return on investment.

Finding the right investor for your business

Connecting with investors that share your vision can be a challenging task, but, with a clear approach and understanding of what your ideal investor looks like, it can be done. By identifying your funding requirements and creating an air-tight case for investment with a compelling pitch, you can match your business with the right investor.

Related Articles

April 16th, 2021

6 Common Mistakes When Selling Your Tech Company

Author: David Perkis

Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold. Here are 6 common mistakes that people make.

Read Article
January 8th, 2021

Developing an Exit Plan

Author: David Perkis

Developing an exit plan. Ideally, you’ll sell your business at its peak. Too often, business owners don’t look far enough ahead. They don’t read the market effectively and panic-sell once their business is tanking. You want to maximise returns.

Read Article
March 25th, 2021

Seller beware: 7 things to look out for when selling your software company

Author: Alex Danieli

When it’s time to move on, you can feel excited about the next stage. You might be retiring, taking up an exciting career shift or starting another business from scratch. The urge to move on quickly can pull your focus away from important details. And these can lead to mistakes.

Read Article

Private Equity (PE) and Venture Capital (VC) are two channels of investment that are often (incorrectly) used to describe private capital investments into companies at various stages of their business lifecycle. However, in spite of the confusion that exists, there are some very stark differences between private equity and venture capital investment.

Private Equity and Venture Capital firms invest in different types of companies at different stages of their business lifecycle, commit different amounts of money, and hold equity in different ways when they invest in companies.

Topic Overview

  • Private Equity Overview
  • Venture Capital Overview
  • Well Known PE Backed Companies
  • Well Known VC Backed Companies
  • Similarities Between PE & VC
  • Key Differences Between PE & VC
  • Pros & Cons of Private Equity
  • Pros & Cons of Venture Capital

Private Equity Overview

Private equity investing involves the investment and acquisition of privately owned companies. Private equity firms (like Teoh Capital) leverage funds from institutional investors or high-net-worth individuals to acquire and invest in privately owned companies.

Typically, PE firms will have a specialty or niche where they have proven experience. Depending on the nature of the business, this may involve improving the operational efficiency of a business, streamlining processes, identify waste and inefficiency, or even expanding the business into new markets. Through these actions, PE firms aim to improve increase profitability and drive bottom-line growth.

Private equity can be appealing to institutional investors and high-net-worth individuals for a number of reasons including:

  • Potential for high returns: PE investing can be extremely lucrative. By acquiring a stake in established, already profitable companies and implementing proven strategies, PE firms can drive significant growth and, therefore, profitability for their investment.
  • Diverse investment portfolio: As we have seen in the second half of 2022, traditional investment markets can be extremely volatile. By diversifying investment into established, profitable companies, PE firms can effectively circumnavigate traditional market volatility.
  • Control & market influence: Private equity investors have significant control and influence in the companies in which that invest. This control means that they can shape the direction of the company and make tough business decisions that business founders and internal management teams may struggle to make.
  • Proven strategies: As we mentioned at the top, niche experience means that PE firms can often (quickly) identify operational inefficiencies and implement proven techniques to streamline business operations and maximise profitability.

Private Equity vs Venture Capital - What's the Difference? Benefits of Private Equity Infographic 2

Venture Capital Overview

Venture capital investing involves providing financial support for start-ups or growing businesses with the opportunity for large, long-term returns if they are successful. VC investing has become somewhat of a buzzword over the last decade with the runaway success of tech companies like Facebook, Airbnb, Uber. The bean-bag strewn offices associated with tech start-ups have become the unofficial imagery that many associate with VC investing.

VC firms will typically invest in businesses during the very early stages of their business lifecycle when they have a high potential for growth, in lieu of proven, profitable revenue streams. Venture capital investing involves a high level of risk as many start-ups do not achieve the same level of growth of success that is projected in those early days. The flip side of the ‘risk’ coin is that venture capital investment can yield significant ROI when successful.

Venture capital investment is a key source of funding for start-ups and small businesses that have a significant opportunity for growth but lack the capital to get things off the ground. VC funding provides businesses with access to capital and resources that facilitate growth at a stage where the business cannot rely on its own revenue streams.

Similarities Between Private Equity & Venture Capital

Like we mentioned, private equity and venture capital are sometimes used interchangeably to describe any type of private investment into privately owned companies. While we now know that this is not the case, there are a number of similarities between PE and VC that are worth mentioning.

Some of the similarities between PE and VC include:

  1. Ownership status: VC and PE firms will typically invest in companies that are not publicly traded.
  2. Due diligence: both VC and PE firms will do extensive due diligence on the companies that they invest in before making any sort of commitment.
  3. Drive for profitability: both VC and PE seek to improve the profitability of the companies that they invest in through an injection of capital and resources
  4. Role in the company: both venture capital and private equity firms will take an active role in the management of the companies that they invest in. This involvement ensures that their investments grow and make the best business decisions.
  5. Niche focus: VC and PE firms will typically have an area of expertise such as tech, software, or finance.

Overall, private equity and venture capital investments are similar in the sense that they provide capital and access to resources in exchange for an ownership stake in a company. Once invested, both firms aim to maximise the profitability of their investment through operational and financial optimisation.

Key Differences Between Private Equity & Venture Capital

While venture capital and private equity companies share some similarities, there are some important differences that separate the two types of investments.

Private Equity vs Venture Capital - What's the Difference? Comparison Chart Infographic 2

Some of the key differences between PE and VC include:

  1. Stage of investment: VC firms will typically invest in companies at a very early-stage of their business lifecycle. Conversely, PE firms tend to invest in mature companies with established proof of concept in the form of positive revenue streams.
  2. Level of risk: VC investment is high-risk with a high potential for return. Because these companies are usually in a “start-up” phase it means that they require a high-level of financial input to execute on their business strategy. On the other hand, PE firms deal with stable, mature companies with a proven track record of success.
  3. Investment timeline: The investment timeline for VC and PE investment can be vastly different. Because VC investing means backing young companies, it means that the timeline for positive returns can be extremely long.
  4. Level of involvement: VC investors will take a very active role in their investments providing support, guidance, and expertise to facilitate growth. PE investors will still provide these resources, but usually at a lower level.
  5. Exit strategy: For VCs, the exit strategy will usually centre around an initial public offering (IPO) and taking their investment public. On the other hand, private equity firms will typically exit their investments following the sale of the company to another firm or a merger.

Private Equity (PE) vs Venture Capital (VC) – Which Is Best?

So, now that you know the differences between private equity investment and venture capital investment, you may be wondering which is the best type of investment model.

The truth is, there is no one-size-fits all answer to this question. The answer largely depends on the type of company that you have, the stage that you are at in your business lifecycle, and your long-term goal for the business.

As we covered above, PE firms and VC firms invest in businesses at different stages of their lifecycle. Choosing between PE and VC investment will come down to your business age, short and long-term goals. Both types of investment can be beneficial depending on the stage that your business is at, so it is worth applying the above information to your business model to see which type of private investment would be most suitable.

Related Articles

April 16th, 2021

6 Common Mistakes When Selling Your Tech Company

Author: David Perkis

Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold. Here are 6 common mistakes that people make.

Read Article
December 2nd, 2022

How Does Private Equity Work?

Author: Alex Danieli

Private equity investing has increasingly entered the public consciousness over the last decade. Thanks largely to the emergence of the Silicon Valley tech bubble the advent of terms such as “Unicorns” to describe privately-owned start-ups with a valuation north of $1-billion, private equity investing has well...

Read Article
March 25th, 2021

Seller beware: 7 things to look out for when selling your software company

Author: Alex Danieli

When it’s time to move on, you can feel excited about the next stage. You might be retiring, taking up an exciting career shift or starting another business from scratch. The urge to move on quickly can pull your focus away from important details. And these can lead to mistakes.

Read Article

Private equity investing has increasingly entered the public consciousness over the last decade. Thanks largely to the emergence of the Silicon Valley tech bubble the advent of terms such as “Unicorns” to describe privately-owned start-ups with a valuation north of $1-billion, private equity investing has well and truly entered the mainstream.

According to the latest data from Preqin, the global private equity market surpassed 4.74-trillion USD at the beginning of 2021. Whether you’re an experienced investor or just getting started, this article will provide you with a solid foundation for understanding the basics of private equity and its changing role in the financial world by addressing the following:

  • What is Private Equity?
  • How Does Private Equity Work?
  • What is the Goal of Private Equity?
  • What is a Private Equity Firm?
  • What is the Difference between Private Equity and Venture Capital?

What is Private Equity?

Before we jump into how private equity works, let’s first answer the question of “what is private equity?”. In simple terms, private equity describes an investment partnership where one companies buys and manages another company before selling it. Private equity firms will typically acquire a majority ownership stake in a company with the intention of using their experience and network to increase its value before selling it for a profit.

How does private equity work?

How Does Private Equity Work?

Private equity involves the acquisition of a private company or asset by an investment firm. Once the private equity firm takes control of the company, they work to increase value through various initiatives such as restructuring, introducing new product ranges, or expanding into new markets.

Private equity firms use their connections, experience, and marketing reach to improve the operational efficiency and profitability of the company that they invest in. Because they boast significant cash and personnel resources, they are usually able to expedite the process of expanding and growing an established business.

Businesses that need help scaling operations or are looking to expand without taking on additional debt will often seek private equity funding.

What is the Goal of Private Equity?

The goal of Private Equity investing is to generate higher returns for investors and the companies that they invest in. PE investing also allows investors to take an active role in company management and operations in order to extract the maximum value from their investment. This may include investors working across activities such as networking, day-to-day operations, marketing, or lead generation.

Private Equity deals are typically very flexible when it comes to structuring deals, which makes them attractive to seasoned investors. PE has become a popular investment vehicle for institutional and high-net worth individuals that are looking for higher returns and more control than typical, passive investment strategies.

By investing in private companies, investors have the potential for significantly higher returns than public markets, as well as access to unique and exciting opportunities that are not available in public markets.

What Is a Private Equity Firm?

A Private Equity Firm or a PE Firm is an investment firm that uses the funds of investors to purchase and manage other companies or assets that have the potential to generate revenue. Private equity firms will typically specialise in different verticals or types of investments.

By investing in companies at various stages of development and growth, private equity firms can generate returns for their investors by increasing the value of their investment (a company or asset). Private equity firms typically employ a range of highly skilled professionals such as bankers, analysts, or IT specialists that are responsible for deploying strategic solutions on behalf of their investors.

In addition to injecting capital, PE firms may provide management advice and access to other services or intellectual property that can help businesses to achieve success. Private equity firms will often specialise in a niche or area of expertise where they can leverage industry knowledge and solutions that can fast-track growth.

Private equity firms provide value for their investors and the companies that they invest in. Capital, knowledge, resources, and experience helps to make their investments more profitable, which is beneficial to their investors and the companies that receive investment.

Private Equity vs. Venture Capital – What’s the Difference?

Private equity and venture capital are two distinct types of investments. While the two terms are often used interchangeably to describe capital investment in a company, there are some important differences that set them apart.

Perhaps the greatest difference between private equity and venture capital is the level of risk that is involved in each type of investment. Venture capital is a high-risk investment in a young company, on the other hand, private equity is an investment in an established (3+ years) company with a proven track record of sales and profitability.

private equity vs venture capital

Private Equity Investment

  • Established, cash-flow positive companies
  • PE companies typically seek a very large or majority ownership stake
  • PE makes profit are the companies increase profit

Venture Capital Investment

  • High risk, young companies
  • Companies are usually not profitable
  • Typically focus on tech start-ups and young companies
  • VC profit is achieved by selling their company share or when the company goes public

Final Thoughts

Ultimately, the success of a private equity investment comes down to careful analysis, sound decision making, and a commitment to predetermined goals.

Private equity provides an important opportunity for businesses that require capital and expert assistance to reach new heights. While the risks for investors are significant, the upside of PE investing can be significant and rewarding for both parties. Private equity offers a unique opportunity to unlock the full potential of an organisation through capital and expert guidance. For more information on the Teoh Capital private equity firm and our services across Sydney, Melbourne, and Brisbane, get in touch with our friendly team today.

Related Articles

April 16th, 2021

6 Common Mistakes When Selling Your Tech Company

Author: David Perkis

Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold. Here are 6 common mistakes that people make.

Read Article
January 19th, 2021

What you need to know about private equity

Author: Alex Danieli

Fundraising is often daunting for business owners. Raising capital can allow the company to flourish, but finding the right investment partner can be time-consuming and difficult. Asking for money might be outside your comfort zone. Not asking for it can keep you small.

Read Article
January 24th, 2023

How to Find Investors For Your Business: A Guide

Author: Alex Danieli

Finding investors for your business can be a daunting task. From meeting with potential backers, to preparing pitch decks and expanding your professional network, there is a lot to consider. Whether you’re in the early stages of a new business, you’ve hit a plateau in growth, or you’re seeking outside...

Read Article

Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold.

Here are 6 common mistakes that people make when selling their software businesses.

Messing up the numbers

If you’re hazy on the details, you risk the buyer leading the discussion on market value, instead of you. Nobody knows your business as thoroughly as you do. Get clear on your baseline so you’re in a strong position to negotiate. Take into account your business’s financial, future and strategic worth. Don’t underestimate the power of your position within your industry. What is special about your business? It’s these things that increase your worth.

Not knowing what the buyer wants

Spend time talking with the buyer about what they’re looking for. Be curious about what they’ve accomplished and why they’re keen to invest in your business. Make connections between what you offer and how it may complement their existing structure. Get into their shoes and think strategically. What’s so attractive about your business? Why choose your company over a rival one?

Selling to the wrong person

This is similar to a marriage. You’re each coming into this arrangement with your own purpose and aspirations. You want the match to work on every level that counts, particularly when there are other people involved, like your employees and your customers. Take the time to properly understand the way your potential buyer works. Find out their plans for your company and assess whether they’re the best match. This is about more than sales price. It’s about your legacy. It pays to be cautious.

Taking too long to sell

When you’re riding wave after wave of success, it can feel like you’re living a business fairytale. You can forget that fortunes rise and fall and, if you’re not paying enough attention to the market, you can misread your timing. Your worth as a company depends on your financials, sure, but it’s also influenced by things like the state of the economy and industry, consumer trade habits and the production of goods.

Selling at the right time is about seizing opportunities. It’s about reading external circumstances and being alert to changing trends. Clinging on for too long can be detrimental in the long run, just selling too quickly can lead to regret. The right timing is about developing a clear strategy and honing your instinct.

Taking the first bid that comes along

Good early bids can seem quite tantalising. A bird in the hand, after all… But if there’s early interest, that can be a good sign of market competition, and it can be worth holding off a little longer. Competition from buyers gives you choice. Match the buyer with the ethos of your company, drive up your sales price, or both. Hasty sales can lead to seller’s remorse, and after all the effort you’ve taken to create the business you’ve got, it’s worth taking your time over this final hurdle.

Lack of clarity

Serious and experienced  prospective buyers will review the business thoroughly as you get closer to a deal. It is reasonable to require due diligence. Be transparent about what they’re going to find. It’s normal to have encountered difficulties along the way of funding and growing your business. It’s about demonstrating how you overcame them. Last-minute panic over hidden problems can spell disaster for the deal. Ensure your financials are trustworthy. Be clear on who owns what intellectual property. Have everything in place legally.

It’s an exciting point that you’ve reached. Keep your feet on the ground. Be clear on your own expectations and know where you’re willing to compromise and where you won’t. You’re in control and the better prepared you are, the better the outcome for you, for your business and people, and for the new owners.

Related Articles

February 10th, 2021

Management Buyout vs. Private Equity

Author: Alex Danieli

Should you consider a Management Buyout from within your company? Or go with external Private Equity, Strategic buyers or a Founder Investor? There are pros and cons with each approach, and the more time you allow to consider your options.

Read Article
December 2nd, 2022

How Does Private Equity Work?

Author: Alex Danieli

Private equity investing has increasingly entered the public consciousness over the last decade. Thanks largely to the emergence of the Silicon Valley tech bubble the advent of terms such as “Unicorns” to describe privately-owned start-ups with a valuation north of $1-billion, private equity investing has well...

Read Article
January 19th, 2021

What you need to know about private equity

Author: Alex Danieli

Fundraising is often daunting for business owners. Raising capital can allow the company to flourish, but finding the right investment partner can be time-consuming and difficult. Asking for money might be outside your comfort zone. Not asking for it can keep you small.

Read Article

When it’s time to move on, you can feel excited about the next stage. You might be retiring, taking up an exciting career shift or starting another business from scratch. The urge to move on quickly can pull your focus away from important details. And these can lead to mistakes. Here are 7 things to look out for when you’re selling a software business.

Most prospective purchasers take longer than you expect

Buyers need to do their due diligence. Their initial excitement may morph into a thorough, process of dotting the i’s and crossing the t’s — and so it should. Ideally, they’ll want to discuss your activities, organisation, due diligence and business planning. This is important, but prioritise those buyers who can expedite due diligence, and who are focused on the present and the future, rather than an over-interrogation of the past.

Selling a business is a lot of work

This is a dance between you and the buyer, and it’s a lot of complicated steps for both of you. You need to schedule plenty of time to work on the sale of your business, and make sure you’re entrusting experts to advise you.

If you’re finding it exhausting, that’s because emotions are involved. This is a big change. You’ve toiled for years to reach this point. You’re bound to have mixed feelings.

Selling a business is time-consuming

You’ll need to adjust your schedule and clear enough time to focus on this properly. It’s more than just the negotiations. It’s the due diligence process, financial plans and processes and the transaction itself. Factor these activities on top of the need to continue business as usual. It’s common to need extra help or resources to juggle the extra work you’ll be taking on.

The workplace will be restless

Rumours travel fast. It’s not uncommon for employees to know a change is in the works long before it’s announced. They will naturally fear change. They might be concerned about continuity of employment or product direction. You want to manage your internal communications well, to avoid any damage to your reputation or employee panic.

The show must go on

Regardless of what’s in the works, it must be business as usual. There are extra eyes on your success throughout the whole process of negotiation. You can’t afford a dip in sales just as people are so interested in your financials. If you’re concerned about letting things fall through the cracks, get help.

Feeling uncertain? That’s normal

Every important step we take in life feels bittersweet. Endings and beginning are full of nostalgia and hope. It’s normal to second-guess what you’re doing. It’s okay to question whether it’s the right time, or this is the right buyer or the right place. At the end of the day, you built this business to realise value for yourself and provide employment to a team, and this is your moment. When you complete the transaction, take a moment to acknowledge the great work you’ve done getting this far.

Related Articles

December 22nd, 2022

Private Equity vs Venture Capital – What’s the Difference?

Author: Alex Danieli

Private Equity (PE) and Venture Capital (VC) are two channels of investment that are often (incorrectly) used to describe private capital investments into companies at various stages of their business lifecycle. However, in spite of the confusion that exists, there are some very stark differences between private...

Read Article
February 10th, 2021

Management Buyout vs. Private Equity

Author: Alex Danieli

Should you consider a Management Buyout from within your company? Or go with external Private Equity, Strategic buyers or a Founder Investor? There are pros and cons with each approach, and the more time you allow to consider your options.

Read Article
January 8th, 2021

Developing an Exit Plan

Author: David Perkis

Developing an exit plan. Ideally, you’ll sell your business at its peak. Too often, business owners don’t look far enough ahead. They don’t read the market effectively and panic-sell once their business is tanking. You want to maximise returns.

Read Article

Sell Your Software Company Without a Broker

You don’t have to use a broker to sell your business. Every business is unique, with its own needs and structures. There are some strategies that can help you sell on your own.

Get clear on what you want

People sell businesses for all sorts of motivations. You might be keen on top dollar over all else, or perhaps it’s more important to you to sell to like-minded individuals who share your vision. Perhaps you’re looking to scale your business or take it in a fresh direction and you’re open to innovative ideas. Whatever your motivation for this move, develop a clear set of guidelines to help you make decisions.

Build your network

It’s not what you know, it’s who, right? The more people you connect with in your industry, the more potential buyers you’re going to meet. Search out companies who buy companies like yours. Talk to people about their experiences. Keep an open mind to different options, and do deep research and due diligence.

Create a confidential Information Memorandum

This is a document you can use to inform buyers about your business. It talks about the solutions you offer, the market you’re in, your competitors, customers, employees and financials. You’ll include historical information and future projections, so buyers find it easy to make a decision.

Closing the deal

Selling a company involves a lot of back and forth negotiations. You’ll discuss the details of intellectual property, binding arrangements and the transaction structure, amongst other things. This is the time to enlist a legal expert with M&A experience. You can’t leave this part to chance.

Give yourself sufficient time to find the best buyer for your company and get the process right. If something seems too easy, it probably is, so always back up your work with advice from experts. Selling your company can be an emotional decision. Take some deep breaths and ensure you’re making wise choices that preserve your legacy and protect your people.

Related Articles

February 10th, 2021

Management Buyout vs. Private Equity

Author: Alex Danieli

Should you consider a Management Buyout from within your company? Or go with external Private Equity, Strategic buyers or a Founder Investor? There are pros and cons with each approach, and the more time you allow to consider your options.

Read Article
January 19th, 2021

What you need to know about private equity

Author: Alex Danieli

Fundraising is often daunting for business owners. Raising capital can allow the company to flourish, but finding the right investment partner can be time-consuming and difficult. Asking for money might be outside your comfort zone. Not asking for it can keep you small.

Read Article
December 22nd, 2022

Private Equity vs Venture Capital – What’s the Difference?

Author: Alex Danieli

Private Equity (PE) and Venture Capital (VC) are two channels of investment that are often (incorrectly) used to describe private capital investments into companies at various stages of their business lifecycle. However, in spite of the confusion that exists, there are some very stark differences between private...

Read Article

Management Buyout vs. Private Equity – Understand Your Options

Should you consider a Management Buyout from within your company? Or go with external Private Equity, Strategic buyers or a Founder Investor? There are pros and cons with each approach, and the more time you allow to consider your options, the better placed you’ll be to make a decision that’s right for your company.

Teoh Capital

Teoh Capital is a private, family-owned investment firm. We acquire and hold software and technology businesses. We won’t sell your company to a rival. We take care of your employees, your brands, your products and services and your customers.

When we buy a company, we keep disruption to a minimum. Our focus is on our companies retaining business autonomy while we inject the capital they need for growth. Our experienced, global network of top talent is available to offer expert advice during all the phases ahead.

How are we different?

Our flexible capital enables founders to maximise proceeds via a two-stage exit, while retaining operational autonomy and benefiting from ongoing, direct access to our founder-investor, David Teoh. In practice, this means we offer ‘capital out’ options for founders to immediately realise the value of what they have built, but we also support them to retain the upside value from the growth capital that we invest to accelerate the growth and value of the business.

While private equity can also offer a two-stage exit to founders and investors (where this is an objective), Teoh Capital’s difference is to invest without a fixed time horizon. Due to fund structures and management fees, private equity and venture capital funds have a limited time horizon that may not align with the growth lifecycle of a company. Unlike those investors, we are not distracted by exit plans a year or two after a transaction.

Similar to venture capital investors, we can invest growth equity to accelerate growth and increase the value of the business and its impact on industries, however, we unlike venture capital, we provide founders ‘capital out’ so that they can de-risk upfront.

Finally, one of our key points of difference is the continuous and direct access that our investees get to our founder-investor, David Teoh and our investment team. We have unparalleled pedigree in founding, operating and growing software and technology businesses and can draw from decades of experience.

Comparison of Teoh Capital to other sources of capital

Teoh Capital Private Equity Venture Capital Trade / Corporate Buyer
Capital out – vendors can realise value
Capital in – growth equity into companies
Vendors maximise proceeds via 2-stage exit while de-risking today
Company management retain operational continuity
Material, dedicated operational input – not just ‘support’
Direct, local access to founder-investor
Streamlined, single-layer and agile investment decision making

Related Articles

April 16th, 2021

6 Common Mistakes When Selling Your Tech Company

Author: David Perkis

Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold. Here are 6 common mistakes that people make.

Read Article
January 8th, 2021

Developing an Exit Plan

Author: David Perkis

Developing an exit plan. Ideally, you’ll sell your business at its peak. Too often, business owners don’t look far enough ahead. They don’t read the market effectively and panic-sell once their business is tanking. You want to maximise returns.

Read Article
December 22nd, 2022

Private Equity vs Venture Capital – What’s the Difference?

Author: Alex Danieli

Private Equity (PE) and Venture Capital (VC) are two channels of investment that are often (incorrectly) used to describe private capital investments into companies at various stages of their business lifecycle. However, in spite of the confusion that exists, there are some very stark differences between private...

Read Article

What You Need to Know About Private Equity

Fundraising is often daunting for business owners. Raising capital can allow the company to flourish, but finding the right investment partner can be time-consuming and difficult. Asking for money might be outside your comfort zone. Not asking for it can keep you small.

Choosing the right investment partner comes with risk. Get it wrong, and your business can run into trouble or even fail. You want opportunities for growth and sustainability, while keeping autonomy over your product development and direction.

The process of securing private equity can be fraught, because it’s frequently transactional and data-driven. It often provides little benefit to the workers and executives who founded these companies. It can disregard the needs of consumers.

But with the right private investor, the story can be very different.

The benefits of partnering with tier 1 private investors

  • Business sales can be increased and organisations strengthened
  • Enhanced value with proven growth strategies
  • New product development ideas
  • Attraction and retention of top talent
  • Setting up to scale in existing and new markets, including offshore

Teoh Capital brings decades of experience to our family of software and technology companies. We understand the market and appreciate the legacy of a company and the vision of its founders. Our capital allows for sustained growth and our network of talent opens opportunities that can’t be reached by a business alone.

Related Articles

April 16th, 2021

6 Common Mistakes When Selling Your Tech Company

Author: David Perkis

Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold. Here are 6 common mistakes that people make.

Read Article
January 24th, 2023

How to Find Investors For Your Business: A Guide

Author: Alex Danieli

Finding investors for your business can be a daunting task. From meeting with potential backers, to preparing pitch decks and expanding your professional network, there is a lot to consider. Whether you’re in the early stages of a new business, you’ve hit a plateau in growth, or you’re seeking outside...

Read Article
March 3rd, 2021

How to Sell Your Software Company Without a Broker

Author: David Perkis

You don’t have to use a broker to sell your business. Every business is unique, with its own needs and structures. There are some strategies that can help you sell on your own. Get clear on what you want. People sell businesses for all sorts of motivations. You might be keen on top dollar over all else.

Read Article

Developing an exit plan

Ideally, you’ll sell your business at its peak. Too often, business owners don’t look far enough ahead. They don’t read the market effectively and panic-sell once their business is tanking.

You want to maximise returns. Prepare for your exit properly and several years ahead if you can, bearing in mind things might change if the technological landscape shifts unexpectedly or you lose a few key clients or competition intensifies. Preparing an exit plan is about your business legacy, but it’s also about taking care of the employees who’ve worked hard with you on your shared purpose.

To plan well for your exit:

  • Give yourself enough time. The process of finding buyers might take longer than you think.
  • Keep your foot on the accelerator until you’re over the finish line. Too often business owners mentally ‘leave the building’ while they’re still meant to be operating the company. You’ll be able to downshift soon enough. For now — focus on developing and delivering great products and services.
  • Keep developing your people. Incoming owners want smart teams who deliver results. Your career might be taking a different step but your staff likely intend to stick with the business, so it’s important to stand by them until the very end.

What sort of exit is right for you?

To exit, the basic options are to sell to a management team member / successor, or to partner with an external investor (be it private equity, venture capital or a founder investor). Sometimes, senior managers within the business take over operations. It can be a great way of ensuring continuity and maintaining existing relationships. There can be risks, though, including financial risk if the buyout is in instalments. You might find offers from within the company are lower than external ones. The MBO process tends to be more cumbersome and often takes longer than a process with an external buyer.

The more time you give yourself to muse over your options and come up with solid future plans, the better the deal you’re likely to strike. This moment has been coming since you first had the idea to start a business. You want to do all you can to make the most of it, and honour the years of work you’ve invested bringing your business to where it is now.

Related Articles

December 2nd, 2022

How Does Private Equity Work?

Author: Alex Danieli

Private equity investing has increasingly entered the public consciousness over the last decade. Thanks largely to the emergence of the Silicon Valley tech bubble the advent of terms such as “Unicorns” to describe privately-owned start-ups with a valuation north of $1-billion, private equity investing has well...

Read Article
January 24th, 2023

How to Find Investors For Your Business: A Guide

Author: Alex Danieli

Finding investors for your business can be a daunting task. From meeting with potential backers, to preparing pitch decks and expanding your professional network, there is a lot to consider. Whether you’re in the early stages of a new business, you’ve hit a plateau in growth, or you’re seeking outside...

Read Article
March 25th, 2021

Seller beware: 7 things to look out for when selling your software company

Author: Alex Danieli

When it’s time to move on, you can feel excited about the next stage. You might be retiring, taking up an exciting career shift or starting another business from scratch. The urge to move on quickly can pull your focus away from important details. And these can lead to mistakes.

Read Article