Throughout our careers, we have been pitched by thousands of companies. Here are the top five reasons we’ve seen why investors say no.
- Management’s inability to tell the story
If you can’t get your point across in the time it takes to ride up 20 floors in an elevator, you should refine your pitch. We’ve had calls with companies after which we could not even tell you what the company’s business is. It’s important to be clear and concise when pitching investors, and to make clear the benefit of your company to your target market.
- Valuation too high
Often, companies will approach us with an unjustifiably high valuation. They often say that these valuations were verified by third parties. Our response is: “Great, then have them invest at that valuation.” The most important valuation is the valuation that gets your transaction done. It does not matter what you think your company is worth if investors don’t agree.
- No plan to liquidity event
What is the biggest fear of an investor in a private company? The biggest fear is that the company will succeed, but there will never be a liquidity event, thus making the investors captive minority stockholders, and their shares worthless. It’s important to have a clear path to a liquidity event, whether it is a public offering or a buyout. We like to structure our transactions as public-market based transactions when appropriate. This allows for higher valuations, friendlier terms, and happier investors.
- Unattractive industry
As a management team, you could be doing everything right and hitting the ball out of the park within your market segment, however if the industry in which you operate is not attractive to investors, they will likely not take a chance on your company. An industry can seem unattractive to investors for a number of reasons: the industry could be highly competitive, the industry could be in decline, or the industry could be out of their area of expertise. You may be the highest grossing frozen fish distributor in the world, but if you approach a technology investor, chances are they will pass on the investment.
- Uncertainty as to management’s ability to execute
Convincing investors of your ability to lead your company is just as important as convincing them of your company’s ability to succeed. Although an investor is purchasing a stake in your company, they are purchasing a stake in you as well.
Bob Brown and Andrew Glashow are the founding partners of New World Merchant Partners, a transactional and strategic advisory firm. They are seasoned professionals with long and successful track records as a result of their experience in finance, investment banking, legal, marketing, technology and operations. Collectively, they have advised and assisted more than 100 management teams and owners to help them achieve their financial objectives through numerous corporate finance, M&A, and commercial transactions.