🏴☠️ ⚡️ Building an Investor Pipeline You Can Count On (Acquisition Concept)
We are Acquiring and Operating Micro SaaS firms in public. Join us every Saturday morning for acquisition strategies and deal analysis, value creation playbooks, operating concepts, and more...
TABLE OF CONTENTS:
THE SCENARIO YOU WANT TO AVOID
THE MOST IMPORTANT QUESTIONS TO ASK A SILENT MICRO SAAS ACQUISITION INVESTOR
A MORE ROBUST VERSION OF KEY AREAS TO COVER WITH ANY INVESTOR
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Let’s quickly paint a picture…
You’ve been fundraising for three months and conducted dozens of meetings with prospective investors. You have established a healthy pipeline of 10x ‘committed’ investors (meaning: they are in when the time comes to formally wire money unless the deal you are pursuing is radically different than the expectations you’ve established). You’ve met your fundraising target and entered a formal LOI for the acquisition at hand.
The time comes to call capital from your investors and 80% drop off. You’re now well short of the capital you need to execute the acquisition. You found a deal that meets your criteria, negotiated an LOI based on a rational valuation and fair payment terms, and are geared up to begin executing due diligence and validating your assumptions for the investment thesis. But now you don’t have the capital. Everything hits a brick wall for what feels like no fault of your own…
It turns out, very few of your investors have made a private investment like this. Furthermore, they lack experience in planning their own liquidity to ensure they can fund the investment when the time comes (aka their money is stuck somewhere else).
By way of analogy, in the sales and marketing world, this is what we call poor forecasting. Where you swear a range of new business accounts are going to sign contracts and become customers by a certain date at a certain value. The dates come and go, no new customers. This is because you failed to ‘qualify’ the accounts in your pipeline. In the simplest sense, you failed to confirm they are experiencing the pain points your product solves for, they have the budget to pay for solving these pain points, and the person you’re talking to has the authority to make it happen.
We can all avoid the scenario detailed above by establishing simple investor qualification criteria as a guiding light for investor conversations and to ensure you build an investor pipeline in which you have confidence.
THE MOST IMPORTANT QUESTIONS TO ASK A SILENT MICRO SAAS ACQUISITION INVESTOR
1. What is your typical investment size and what stage of businesses do you typically focus on?
Qualification Criteria: The investor's financial capacity and focus on the business stage must match your funding requirements and stage.
Impact: Ensures alignment in financial expectations and stage focus, preventing mismatches that could lead to funding shortfalls or misaligned interpretations of performance.
2. Can you describe your investment process and typical timeline from the initial meeting to funding?
Qualification Criteria: The investor's process and timeline should be efficient and compatible with your funding schedule.
Impact: Helps you plan effectively and ensures that the investor's timeline meets your business's needs, avoiding delays that could hinder progress.
3. What are your typical terms and conditions for investments, including any preferred equity or board seats?
Qualification Criteria: Investor’s terms must be reasonable and align with your company’s strategic and governance structure.
Impact: Prevents future disagreements by ensuring both parties are on the same page regarding investment terms, especially critical for silent partners.
4. What is your track record with passive investments, and can you share some success stories?
Qualification Criteria: The investor should have a successful history of passive investments and demonstrate comfort and competence in this role.
Impact: Assesses their experience and success in being silent partners, ensuring they understand the role and what they are committing to.
5. What are your return expectations and preferred exit strategy and timeline?
Qualification Criteria: Investor's return expectations and exit strategy must align with your business goals and timeline.
Impact: Ensures that your financial goals and strategic vision are in sync, establishing a clear path forward for both parties and preventing future conflicts.
The above are intended to provide focus; here is a more elaborate version of each criteria area to provide more inspiration such that you can cultivate your own approach based on context. etc.
A MORE ROBUST VERSION OF KEY AREAS TO COVER WITH ANY INVESTOR
Investment Criteria:
What sectors or types of businesses do they typically invest in?
What is their average investment size?
Do they have specific geographic preferences or restrictions?
What stage of business do they prefer to invest in (e.g., early-stage, growth, mature)?
Investment Process:
What is their typical due diligence process?
What is the average timeline from initial meeting to investment?
Who are the key decision-makers involved in their investment process?
Strategic Alignment:
Do they hope to add value beyond capital (e.g., strategic guidance, operational support)?
What is their approach to portfolio company support and involvement?
Can they provide examples of how they've helped other companies in their portfolio?
Track Record and Reputation:
Can they share some success stories from their previous investments?
What is their track record in the Micro SaaS space or similar niches?
How do they handle underperforming investments?
Terms and Expectations:
What are their typical terms and conditions for investments (e.g., preferred equity, board seats)?
What are their return expectations?
What is their preferred exit strategy and timeline?
That’s a wrap!
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