What Investors WantPosted: December 22, 2011
If your company is planning to raise additional capital or working towards a liquidity event, there are specific things from the IT perspective the new investors will want to see and get comfortable with. While some investors get into more detail than others, below are the most important and common things I have seen doing this over the past 10 years.
Not buying the current state
Most of the time, investors are not investing in or buying your company for what it is today. They see the potential of what your company can become. That potential might be achieved with just the money they are putting in or it might be with a new management team who they believe can take it to the next level. From an IT perspective, showing that your current product and infrastructure can handle current volumes is not adequate. It is critical to get an understanding of the revenue targets required to get the return they are looking for – from that, you can work backwards to determine rough volume targets. It is these volumes that you need to demonstrate you can handle.
Wheels are not going to come off
Related to buying a “future state” of the company, investors want to know that as the changes are made from a sales and marketing perspective to ramp up sales, the wheels are not going to come off from a product and infrastructure perspective. Investors want their money going towards new sales, not unexpectedly having to rebuild the product because it can’t handle the additional load. It is OK to show the roadmap of things that need to happen to be able to support higher volumes. Everything doesn’t have to be infinitely scaleable and fully featured on the day the transaction closes, but they want to know up front a ballpark cost on what it will take to get there.
For applications that house sensitive data (credit card data, health information, personal data, etc…), the investor’s money is at risk should that data be hacked resulting in either direct financial penalties or such bad press that the sales effort is significantly impacted. Again, you don’t have to be perfect, but there needs to basic controls in place and a plan (with estimated costs) for what remains to be done.
Investors are not just betting on the market and the opportunity they see in that market – they are betting on the management team’s ability to execute. From an IT perspective, they want to see a leader who understands where the company needs to go, can articulate a plan to get there, and is respected by those who work with and for him. They want to see strong engineers who are motivated, excited about the company, and have been around for a while – high turnover is an immediate red flag.
While there are certainly many more details associated with IT due diligence, these are the most important and most common things investors look at. Don’t be afraid for investors to see that things are not perfect – they expect that. What will derail the deal (or possibly require a leadership change) is if you don’t know what the problems are and don’t have a good idea of what it will take to fix them.