Unorthodox, not unfounded: Start-ups seeking equity capital cannot raise funds by IPOs, but they can go to “Angel” investors, Venture Capital firms or Strategic partnership investors. Many small businesses cannot evaluate whether their business model will find favor with investors. They lack of proper information and a structured approach towards preparing for private equity. This also explains the skepticism around the cost and complexity of the process.
Professional help takes away much of the headache of managing the process. As long as the business or idea is substantial and transparent, the right consultant can find the best suited investor and seal the deal. The process an equity investor follows to scrutinize a proposal is not very different from that followed by a bank or other lending institution. However, the end goals differ. Unlike common belief, a consultant’s fee does not really break the bank, particularly as the biggest chuck of it is payable only when the funding deal is through. Also, this fee is paid out of the newly raised capital.
Safeguard of business secrets: Many businesses are not comfortable with the idea of sharing their trade secrets and business plans with the potential investors. This is particularly because an entity has to approach multiple potential parties before a deal is finalized. However, this fear is mostly not substantive. Private equity investors are structured as professional, registered entities that follow legitimate industry practices. An investee’s insider information is required only after the initial screening stages of the investment deal process. In addition, entrepreneurs can safeguard their interests through legal contracts with non-disclosure clauses.
Equity investors bring much more on the table than just the funds, such as industry networking, incubation supports, and the much needed objectivity.