Raising capital or selling a company can be a great step in the right direction. The trick is to do it at the right time. Throughout my experience, I’ve seen three key themes that hold companies back from making a move at the most optimum time.
Not fully understanding the marketplace, opportunity, or window of time to act. I have seen many nice companies with solid ideas that believe they are the only game in town. But I’ve always believed in the notion that if “I’m thinking about it, then someone else, somewhere in the world, is thinking about it too.” This means there aren’t too many original ideas out there.
Some companies spend too much time perfecting the technology, offering, or solution versus creating a plan of action to raise capital and get to market quickly. Meanwhile, others catch on and catch up, and they get passed by something better.
Not fully understanding the value of their business and the expected ROIC (Return on Investment Capital). There are very few “Unicorn Valuations” out there, so you need to be realistic when it comes to the value of your business as you contemplate raising capital or selling. Advice: Engage a firm that is willing to invest the time and dollars and provide you with a proper assessment of the landscape in terms of valuation, timing, and the window or opportunity. An expert firm can provide a comparable companies analysis based on recent transactions in the marketplace that includes valuation, capitalization tables (i.e., how much ownership is relinquished for capital raised), and just as important, expectations of anticipated timing.
Many companies underestimate this component as they do not understand it. Therefore, they do not respect it and become frustrated quickly. They have high expectations and expect immediate dividends or gratification. They do not appreciate that it is a process. Often these companies become uncooperative in providing relevant information and thus delay the process, which can jeopardize the deal.
Indecisiveness. Too many companies wait, wait, wait, and wait. They are always wondering if something better is going to come along. They do not understand that access to capital markets is largely out of their control and mainly dictated by market conditions (e.g., economy, interest rates, inflation). They do not understand that the window for selling a company can open and shut very quickly. Many companies take months to decide which advisor they will use or whether they will use one at all. They often waste time getting hung up on fees when they do not realize that it is peanuts compared to the millions or billions in value they can create.
Companies that wait until their options are limited are often held back by a false perception of their company, themselves, or the market. To ensure that ego doesn’t get in the way of your opportunities, contact us.
Steve Pomeroy is the founder of Big Change Advisors, a Los Angeles M&A advisory firm of business advisors and capital sourcing advisors for startups and middle-market companies. Since 1992, Steve has completed over 38 transactions including M&A, Capital Sourcing, and Public Offerings representing over $800 million in total transaction value. Through Big Change Advisors, Steve donates a percentage of all fees – or invites clients to donate a portion of Big Change Advisors fees – to help serve the homeless through the Los Angeles Mission. To request a free consultant, contact Steve here.