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Raising Funds - Pipeline or Pipe Dream

After my last blog entry - When Is A Salesperson Not A Sales Person - I now share some further experiences.

My colleagues and I are often are approached by companies to help raise funds for their future growth and success.

We have to be careful here because introducing to the investor network, whilst potentially fruitful, can also carry a risk to reputation. Therefore, we have to be selective and ensure the company raising funds is aware of what investors are seeking and that they have achieved or are capable of achieving certain criteria.

But what are investors looking to achieve?

To put it simply, think of when we buy shares on the stock market. If I buy shares I believe they are cheaper now than they will be at a point of time in the future when I sell them. I do my due diligence, I do some research, or read research from others and make what I consider, rightly or wrongly, to be a good decision. Personally, I look at, amongst other things, current revenues, company strategy, new products, potential market size, time to market of products plus of course margins – potential to pay increasing dividends. One key indicator is what is the sales pipeline?

The share price moves over time, hopefully, but not always (and in my case, rarely) in an upward direction and then at that future point in time I sell the shares and (occasionally) make a profit.

So when a company decides to raise funds, over and above a company's product and potential, what do investors look at?

  • Firstly, does the company have any revenues? – hopefully yes, but if not it is not a disaster.
  • Secondly, and this is the point, does the company have a quality sales strategy and pipeline?

But why?

Well it should be obvious – If a company can demonstrate that they have been committed and organised in building a real pipeline it shows that they appreciate what the investor is trying to achieve.

The company need to have a committed sales methodology – demonstrate that they have approached, met and are in a progressing sales cycle with a number of potential clients.

The company must be able to show that they are growing their list of prospective clients and are involved in real negotiations, installing pilots with an agreed end date and can forecast accurate sales revenues over a future period. The investor is then able to calculate that the shares they are being offered now are cheaper than when this pipeline becomes real revenue generating sales.

To me this seems obvious, but clearly it is not.

Whilst some companies show the attributes an investor looks for, we also come across companies, some with great product, but with no pipeline and no way of demonstrating that they are in the process of building one. They have no sales resources, either internally or outsourced, and show no planning on how they may engage with potential customers. For them fundraising really is a pipe dream.

So this is the point - Looking to raise funds? Build a Pipeline or it is simply a Pipe Dream.




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