Investment bankers play an important role in helping companies raise capital

Register for the event:- https://www.starlightcapital.co/event-info/private-equity-forums-proptech-and-real-estate-february-23-2023 Investment bankers play an important role in helping companies raise capital by connecting them with potential funding sources. However, investment bankers cannot guarantee to fund their clients.

The investment banking process typically involves conducting due diligence on a company, preparing a presentation on its financials and future prospects, and then reaching out to potential investors, such as venture capitalists, private equity firms, or hedge funds, to secure funding. Investment bankers may have established relationships with these funding sources and may be able to provide insight into the investment process, but they do not have the final say on whether the funding will be provided.

The decision to provide funding is ultimately made by the funding source, and there are many factors that can influence their decision. For example, the funding source may have its own investment criteria, such as a minimum investment size, a certain level of risk tolerance, or a preference for certain industries. They may also consider the current market conditions and economic trends when evaluating the potential for returns on their investment.

Another factor that can impact the availability of funds is competition for funding. If many companies are seeking funding at the same time, funding sources may be more selective and choose only the most promising investment opportunities. This can make it more difficult for investment bankers to secure funding for their clients.

However, investment bankers introduce companies to potential investors that fundraising companies might not be able to access without the investment banker’s connections and benefit from the experience of an investment team on their side.

Laura

Why is early-stage equity funding so difficult?

Register for the event:- https://www.starlightcapital.co/event-info/private-equity-forums-proptech-and-real-estate-february-23-2023 Early-stage equity funding refers to the process of raising capital from investors for a startup company in its early stages of development. Despite the potential for high returns and the growing popularity of startups, early-stage equity funding can be a challenging and difficult process. In this article, we will explore some of the reasons why this is the case.

1. High Risk: Startups are high-risk ventures, and investors are aware of this fact. They are often hesitant to invest in a company that has not yet established a track record, as the likelihood of success is uncertain. Furthermore, early-stage companies typically have limited operating history and may not have a well-defined business model, which can make it difficult to assess their future prospects.

2. Competition: The startup space is highly competitive, and early-stage companies often face intense competition from other startups for capital and resources. Investors have a wide range of options to choose from, and early-stage startups need to differentiate themselves and make a strong case for investment.

3. Lack of Credibility: Startups that are in their early stages often lack the credibility and reputation that established companies have built over time. This can make it difficult for early-stage companies to attract investment, as investors may be hesitant to put their money into a company that they perceive as untested and unproven.

4. Difficulty in Valuation: Valuing early-stage companies can be challenging, as they often do not have a proven track record, historical financials, or established market position. This can make it difficult for investors to determine what a fair price for the investment would be.

5. Lack of Liquidity: Early-stage investments are often illiquid, meaning that the investor may not be able to sell their investment for a long time. This can be a challenge for investors who are looking for more immediate returns, as they may be hesitant to invest in a company that they cannot quickly cash out of.

In conclusion, early-stage equity funding can be a difficult and challenging process, but it is not impossible. Startups that are able to demonstrate a strong business concept, a talented team, and a clear path to revenue and profitability are more likely to attract investment. Additionally, startups can benefit from working with experienced investors who can provide not just capital, but also mentorship and guidance in navigating the early stages of growth.

Ten Reasons Investors Decline Deals

Over the years, as angel investors involved in a large angel network, we have heard many reasons why investors decline to invest in MOST of the deals that come before them. Top reasons include variations on the following themes:

1. Management: Weak management team, lacks a track record in this industry or in a start up, no skin in the game, know-it-all egos,

2. Finances: Overly optimistic valuation, unrealistic financials, money sought unlikely to deliver the milestones in the timeframe projected, no cash flow, no collateral, no savings, very high pre-revenue expenses, excessive overhead.

3. Investment terms: Undervalue the importance of early money. Too much risk and too little reward for initial investors. Likely dilution of Seed Round investors

4. Proof of concept for product, service, pricing: No beta testing, no customers, no predecessors

5. Competition: Lots of competition, low barrier to entry, no distinctive differentiation, or the management does not know their competition or market well.

6. Regulations: Lots of regulatory hurdles, each one slow, cumbersome, and expensive

7. Wrong fit: investor invests in other industries, stages of development, or geographic regions. Lack of trust/respect for the entrepreneur.

8. Novelty: The company has jumped on the bandwagon of the “next new thing,” The investor wants to watch and wait.

9. Vaper ware: Cannot tell what the company sells, how it makes money, what its market size is, why it is appealing, to whom.

Ways to get around these problems:

1. Management: Showcase your management as industry experts, including, if appropriate, speeches, white papers, press releases. Scrutinize your management team as investors will.

2. Finances: Solicit pre-money and post-money valuations from a dispassionate professional.

3. Investment terms: Assess your financial resources and time line with and without outside money. Be realistic about how much you need it.

4. Proof of concept: Consider providing your service or product for free until you get the bugs worked out and lots of testimonials.

5. Competition: Develop a specialty. Solve a problem better than the competitors. Demonstrate that.

6. Regulations: Some investors do not want to deal with regulated industries. Others will. Research them.

7. Wrong fit: Research the investors’s criteria. Make a good impression.

8. Novelty: This usually means that both the concept AND the management are untested. However, lots of angels ARE interested in novelty on the theory that they can get ahead of a curve.

9. Vaperware: Develop a 30 second “elevator pitch,” a 1-2 page executive summary, and a 5 minute power point. If you can be brief, you can be clear. If you cannot be brief, you will likely confuse people.

Starlight Capital’s conferences introduce pre-screened entrepreneurs to our network of angel investors. Each presenter delivers a short video and a live Q and A, during which investors can ask a few questions. The next day, the presenters receive a spreadsheet with the contact information for everyone who registered to attend. The number varies from 500 – 1000. The presenters then research, email, and call investors to schedule private appointments to share their business plan in more detail.