At this week’s Access to Capital we discussed equity – what it is, who needs it and where to find it. We were lucky enough to have a very diverse panel, which included Ariel Jaduszliwer from PCV’s investment fund, Ryan Farr, owner of 4505 Meats and Scott Smith, a lawyer at Hanson Bridgett where the event was hosted. Attendees received a ton of helpful information, but I’ve narrowed down and highlighted some of the key points discussed during the session – just in case you missed it:
What investors are looking for – Ariel’s Thoughts:
- Strong management team/management team with potential
- Compelling business model
- Clear path to exit from investment -traditional investors typically look to exit investment in 5 years
- Potential board seats for investors to fill
- High returns
- Unique factors such as location, size or sector that the investor seeks out
Things to remember:
- Your company’s value depends on the particular investor – look for a “good fit” rather than casting a wide net and reaching out to all potential investors.
- Leverage your personal and professional networks
- When meeting with investors, be sure to come prepared. Bring your business plan, historical company data and aggressive yet realistic projections along with your other application materials.
Ryan Farr, owner of 4505 Meats, admitted to the roomful of entrepreneurs that he didn’t have a great plan, network or even the time to work on obtaining equity. The resulting nodding around the room indicated that this is a common problem for many entrepreneurs. However, Ryan’s advice and insight proved that by educating yourself and putting aside time to work on your business, rather than in your business, securing equity is possible. Ryan shared these tips:
- Talk to anyone and everyone about fundraising for your business. This includes community partners like PCV and Working Solutions, customers, friends & family and more traditional lending institutions. You’ll find that, even when the investing relationship isn’t a good fit, you’ll get valuable referrals to other potential investors.
- Think of your business in the long term. Ask yourself, “How much equity to we need? What are we willing to give up to secure equity?” If you want to hold on to your business for a lifetime, make sure that the investing relationship you enter into will be compatible with your long-term goals.
- Understand your numbers! In order to explain less than stellar financials, you must understand what caused those slumps – and be prepared to explain how you bounced back.
Scott Smith from Hanson Bridgett has worked on countless cases involving equity and small business and has identified two pitfalls that entrepreneurs step into:
- Giving away too much equity. Oftentimes this can lead to taking on an “accidental partner” because the investor has bought up so much of the company
- Not using good documentation practices. This makes future investments, acquisitions and partnerships very complicated and messy. It can also leave entrepreneurs without any protection if the investing relationship goes sour, or if the company does very well and the entrepreneur is faced with sharing those profits based on nothing but an informal agreement.
For updates on events like this one, be sure to keep an eye on the PCV calendar, which includes events hosted by PCV and its partners in the Bay Area.
