Positioning Your Business for Acquisition

Your pre-money and exit valuations are almost entirely dependent on the category in which your business operates. Before you go into business and even after starting your company, there are a few key target areas which can make the company more desireable as an acquisition target. Moving a business to higher value categories should be the ever-present desire of management, especially for managers and owners looking to grow by raising capital. Here are a few pointers on how to prepare and position your business for strategic acquisition: 

  • Business scale-up. Is there a way to take your business from a few paying customers to thousands in a short period of time? Software investment banking requires rapid scale. If your software company is unable to scale with sustainable profitability, you’ve got a problem.
  • Barriers to entry. Intellectual property, switching costs and other legal or physical barriers are important to keep competition away from your potential profit sanctuary.
  • Shorter sales cycles. Shortening your company’s sales cycle within the range of profitability increases cash flow, thus providing a more compelling buy-side transaction for private equity funds and other outside VC and angel groups.
  • Larger, faster-growing markets. Selling a product to thousands of vs. tens is a much more compelling proposal for any investor. If your business can successfully target a larger, more quickly-growing market, your business will most likely obtain a higher valuation and become a better buy for venture capitalists and PE groups.

How to move to a higher value category

There is never a clear path forward. Nearly every business must choose between differing demands which will pull the business into different directions. Determining which area will have the greatest impact on adding value is one of the most important strategic missions of management.  Should the business be better prepared to reach massive scale? Should management seek to put up significant barriers to entry? Should there be a push toward a larger target market? What about decreasing sales cycles? Determining your area of focus can be difficult.

In many instances, the current positioning of the business is the best determinant of which direction the business should go. There is no overarching “one size fits all” fix to the direction in which to head. Like most business decisions,  moving to a higher-value category for the company will require quantifiable NPV valuations of each direction in which you may be deciding to head.

In determining how to take your business to the next level to obtain venture capital or private equity funding, speaking with one of our expert finance and business consultants may be helpful.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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