Business

In the current economic climate, private equity investors can be difficult to find.  In my previous blog post, I suggested that during these times investors tend to value liquidity over long term ROI, and thus, private investments are less appealing to them.  To cut through this a business has to show potential investors lower risk of investment and a higher expected return.  For a start-up company, one of my suggested solutions was to develop a business model that will allow the company to generate early revenues (even at a beta stage) and prove to a potential investor that this is a business that can make money.

In an article in Business Week this week the author suggests a similar idea – that angel investors are narrowing their focus to private equity investments in businesses with proven track records.  This is not great news for start-up companies, but it is good insight.  For a new software licensing or SaaS business, for instance, this calls for a change on standard business plans which often include a pre-revenue beta testing stage.  For start-ups that are raising private equity, the focus in early stages needs to include revenue generation.  Be creative here.  Find ways to create early success stories.  Show that a beta market will pay for the beta product.  

As I also mentioned in my previous blog post, do not be afraid to think global.  My business law firm has found that international angel investors are still very interested in investments in the U.S. - even in pre-revenue start-ups.  The difficulty is getting in front of and forming relationships with them - which is where trusted equity consultants and advisors can prove valuable.

My common theme to clients - do not be afraid of the current economic situation.  It creates many opportunities that can benefit your business.  However, you must get creative to take advantage of these opportunities.