Recently I was at an educational technology conference and I was fortunate to sit in on a panel discussion on what investors are looking for from prospective investments. Here is one response, from a super experienced, successful and thoughtful person, Sari Factor, who is the Managing Director- Education at Weld North. Weld North is a PE firm founded by John Grayer, who essentially built Kaplan and KKR. Ignore these at your own risk!
Top 10 things to look for in a prospective investment
10) What is the business model? Entrepreneurs need a great elevator pitch. Have to be able to explain easily how it will make money.
9) Can you do a product demo? (this is kind of a trick question) If a CEO can’t do demo, it’s too complicated to sell. Product is unbelievably important and the hardest thing to replicate.
How do you know if your product is effective? We look for a research basis, case studies, tracking data etc.
7) Who are your competitors? What products etc are you replacing? What is your sustainable competitive advantage? Red Flag :when someone says that they don’t have competition…
6) What sources of funding do customers use to buy your products? Funding is going to change. Can you get into the customers operating budgets? They look for non-one time sales. They are big fans of recurring revenue models.
5) Who will be your target customers and how will you reach them? What is (are) your customer types. Specifically, how will it change over time? What is your selling cycle? Do you have a sales force / distribution model?
4) Do you have a compelling business plan? Not a PhD plan. Support for details behind plans. Do the plans mesh well (both revenue and cost elements?) They like to see plans that are not “hockey stick” businesses. –> Revenues and costs need to be built out realistically
3) What is current capital structure? Does it provide obstacles to investment?
2) How will you use the capital you are seeking? Need to understand thinking and strategy.
1) What unique value do you think that they could add as investors? How do you want us to be involved?
All this seems kind of sensible!