CASH - Criteria that private equity funds are looking for in funding a start-ups!

CASH - Criteria that private equity funds are looking for in funding a start-ups!
(CopyRight 2009; Benjamin Goh, www.bensglobal.com)

C for Cash-flow. The company must be or will be having a positive cash-flow position with a very high level of confidence and certainty. Current investors are looking for deals where risks have been minimized but the valuation is still very positive. Gone are the good old days where funding is given at the very early stages of a start-up where risk is relatively very high.

A for Attitude. As in all other relationships, a good business relationship between an investor and an entrepreneur must be one where there is a high level of trust. The entrepreneur should be seen as someone with a high degree of integrity, a great personality and most important of all, an extremely good attitude that will give the investor the assurance of the entrepreneur's commitment and perseverance towards achieving success in the start-up business.

S for Seasoned Management. This is extremely important and crucial as it will definitely raise the confidence level of the investor. A must it would be! It would be even more ideal if the management team has done it before and was successful. As such, the minimum requirement would be to have at least one person in the management team to have done it before.

H for High-growth potential. In general, most investors would like to achieve a targeted 30 to 40 percent internel rate of return per year over a period of five-years. This may not be achieveable in the first 2 years but it should be compensated in the 3rd to 5th year.

In addition to the above 4 criteria, there are of course, questions with regards to the market forces, competitive advantages, threats from substitutes, rivalry, financials, assumptions, etc.

As such, the advise is to go slow but steady, so as to win the race. But also be fully equipped with plans and solutions to counter the competition should one arise. The best is to have a niche that has a very high barrier of entry and thus, making it less attractive for the competition to compete head on with the company.