I had a meeting with an Indiana technology client this week who is interested in pursuing US private equity funding for a roll out of a new SaaS product (actually a 7 year old successful software product converted to a new SaaS model). The capital will be used primarily for additional sales staff with a small portion being used to hire an additional developer.I am always happy with this structure – focus investors’ money on revenue generating activities rather than product development. I see many early stage companies prepare for a capital raise which is only intended to cover product development. There is nothing necessarily wrong there, but it may not be the best approach.
Think about getting the product to market, not just getting it done. Companies that pursue capital from private equity investors to only cover product development often end up with a great product in hand but no resources to get the product to market. The idea that if we build it customers will come is a myth.
Savvy private equity investors will see this as a weakness in a business plan. You have to know your “to market” strategy.
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