If you are thinking about scaling up your business but can’t do it with your current capital, you may be thinking about taking on minority growth equity. This type of equity is particularly useful when you are in a high growth phase or when you would like to capitalize on a specific growth opportunity like geographic expansion or hiring. A minority growth equity partner allows you to retain control of your company without the need for taking on a lender. This strategy, however, is most successful when you find the right partner to invest with.
Vetting prospective investors
You should take several steps to find the right minority growth partner for your company. At each stage of the process, you will want to collect key information to help you find the right partner for you and your business.
Before you begin to do outreach to potential investors, ensure to start by researching what options you have in front of you and what qualities you are looking for from a capital partner. During this stage, you will want to collect the basic information. You have criteria for an equity partner, and each investor you speak with will have their own criteria for companies they are interested in working with. The initial screen will help you both determine if you are a match for each other.
In this stage of the process, you will want to find out how the investor structures their deals (e.g., equity, debt, etc.), their investment criteria, their experience with your industry, how long their process may take and how involved they are post investment. These are items you will want to ensure alignment before you proceed.
You will also want to get details about the investor’s fund or portfolio. This will include whether or not their capital is committed, how many investments they have in their portfolio, and whether they are willing to make follow-on investments. Further, make sure to ask them how they can help you and the company continue to grow post-close.
Once you have found an investor that you believe is a good match, you will want to learn about their investment process.
At this stage, it is recommended that you get some references as well to perform your own due diligence on the fund. Ask the investor to provide the names of some CEOs of companies that they have previously invested in. Speaking to some of their portfolio company management teams will provide great insight into how they operate and work with their partner companies. You may also have common connections with members of the team. Make sure to assess their reputation in the marketplace.
Ok, so you’ve found the right partner and have a tentative agreement in place – congratulations! But there are still a few important conversations you will want to have with your investor. Discuss the details of what your day-to-day relationship will look like and what their reporting requirements are post investment.
You will want to know how performance is measured, what ways your investor can contribute to your business other than capital, and what happens if one of you decides to exit the relationship.
By going through a careful vetting process of potential investors, you will increase your chances of success in finding the right partner for your business.
Contact CBGF today
Are you looking for a minority equity investor to partner with you in your business? Let’s see if we are a fit for each other! Contact CBGF today to schedule a meeting.