If I were to create a matrix of the type of deals we see, it would look something like this:
Numbers 1, 2 and 5 are doable and we generally like to stay within that lane. We try and avoid numbers 3, 4 and 6 like the plague. Nothing is worse than a bad team. Vetting a team takes time. It helps to use some of the speed of trust principles to get down the learning curve faster, however. The most important principle in choosing whether or not to work with someone or ultimately “fire” them typically revolves around the team.
Rarely do we find a #5. Most great teams bubble-up great deals. A couple of other interesting things to note. Numbers 2 and 5 can fairly easily graduate to a number 1, but 3, 4, and 6 rarely do. Numbers 3 and 6 are terrible because poor teams fail at execution. Ideas are a dime a dozen. Execution matters.
Poor preparation is something dealmakers and rainmakers thrive on. It’s deal prep that every MBA Excel and PPTX junkie loves. In many cases, advisors are able to put enough lipstick on the pig that that the deal can make a hearty go at seeking investment dollars.
Even in the absence of lipstick and sizzle there sometimes exists an X-factor when it comes to raising capital. I have seen successfully-closed deals accomplished by the 3, 4 and 6 categories, albeit rarely. In most cases, there is a proverbial X-factor that investors and potential investors saw that advisors may not have. For instance, perhaps where an investment banker judged a poor deal, the investor had a strategic reason to buy-in (e.g. IP, team acquihire, etc.). Or, further still, perhaps the investor saw through poor presentation at a good deal and skipped the vetting of the team. Whatever the case, there are always outliers to a good quality process.
However, the exception is still not the norm, especially when raising institutional dollars. Investors will vet and vet again–in a much deeper way than any investment banker does. If a company has gaps in the presentation, team or opportunity, the best way to ensure success is to hire an investment banker, get your stuff together and fill the gaps. Don’t bank on having enough X-factor to avoid the real hard work of proper deal preparation.