The Success or Failure of Your Equity Raise Depends (Mostly) on How Well You Do This

Written by Gene Wright. Posted in Funding/Lending

Want to know whether or not a proposed business investment is sound? Look no further than its Value Proposition. A VP is the starting point for potential issuers in developing equity crowdfunding campaigns that has a significant influence on their success or failure. Simply put, if the VP isn’t clear and compelling enough, investors will look elsewhere for better returns for their dollars.

What Is a Business Value Proposition (VP)?

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Simply put, a VP determines a business’ right to exist. It’s the essence of the business itself: the one thing this company does better than anybody else in the world. Without a compelling VP – a potential business investment does not warrant investor attention. But a BVP goes beyond just a great, inspirational premise: it is the synchronized value of many interrelated factors that will all be taken into consideration by savvy investors as predictors of a business’ future potential.

Components of a Solid VP

The three major elements of a solid VP are:

  • The Business Model: Clearly articulates how a business will become profitable and how well it can defend these profits from competitors. Investors look for profit margins that are defendable and sustainable.
  • A Credible Management Team: Many an investor will bet on people rather than the business, because talented, inspired people or teams can create some of the market’s hottest business ventures. Related industry experience, chemistry, excellent communications skills and strategic marketplace relationships are indicators of a strong team’s ability to follow through and deliver promised results.
  • Scalability: The strategy an equity raise proposes for the use of capital raised indicates how solid its assumptions for its financial plan are.
    • How will the money be used?
    • How far will the capital raised take the business?
    • How much sustainable growth can be expected over what time frame?

A VP in Action

Consider a seasoned business owner with many years’ experience in the telecommunications sector, but little understanding of raising capital from others. He initially thought he would need to raise $1 million to achieve his goal of taking the business to a level attractive enough to be acquired by another company; in reality, he needed closer to $8 million.

He could clearly articulate his VP; he saw the opportunity and had the skills necessary to achieve his vision of success; but he couldn’t provide clear financial plans and his management team, and industry relationships, while valuable, were in the wrong area (middle versus executive management). By strengthening his core team, he was able to highlight the strengths of his VP and convince investors that his business could deliver on its promises.

Whether a business needs $200,000 or $200 million, its VP needs to be well well-articulated and executable.

Ultimately, the businesses that succeed in raising capital are those that take an excellent idea, can present it effectively and have strong, motivated managers leading them capable of executing a well-defined plan.