37 investors, a mixture of business angels, venture capital providers, incubators and banks were asked to provide information to Ibis on what they commonly incorporated in their summaries of particular investment proposals.
The results were very varied. All investors required details of project, market and management, venture capital providers were also interested in exit, valuation, risk assessment and worst case scenarios. Business angel networks were the least sophisticated in preparing detailed investment case summaries; banks were most interested in levels of security provided, gearing and interest cover.
In total 34 items were mentioned which would be incorporated into an investment case summary. These are listed below with a brief comment of what is normally included.
|
Element |
What it includes |
|
Funding stage |
Definition of funding required – seed corn, early stage, second round, expansion capital, MBO,MBI |
|
Purpose of funding |
Describes the use of funds |
|
Current and other proposed funding routes |
Describes current funding structure of company; includes any other new funding proposed |
|
Key shareholdings |
Structure of ownership |
|
Company description |
Describes what company does – technology, market it services |
|
Tangible assets |
Lists current assets |
|
Intangible assets (inc IPR) |
Lists other assets, such as brand value. IPR value |
|
Market size and growth |
Order of magnitude of market, rate of growth |
|
Market drivers |
Key forces shaping the market and how proposal is influenced |
|
Speed of market change |
Identifies diffusion dynamics of market; key buyers |
|
Global potential |
Defines how easy it will be to expand the company to service a wider market |
|
Seasonality, long term cycles |
Defines stability of market growth and revenues over investment horizon |
|
Pricing/ market profitability |
Defines how constrained the company will be in managing pricing and levels of return that can be expected in the market |
|
Management team |
Defines how effective the management team is and what gaps need to be filled to implement the company plan |
|
Extent of project development |
Describes the stage of project development for companies in early stage investment |
|
Business model |
Defines how the company will reach the market; how it will make money; how this compares with other successful models |
|
Business strategy |
Describes mixture of strategic options which are currently used by the company and future plans |
|
Competitive advantage |
Clear definition of competitive advantage: does it really exist? |
|
Main competitors |
Lists main competitors |
|
Barriers to entry |
Defines barriers to entry in market and how competitive exclusion can be achieved |
|
Key performance indicators |
Defines what performance measures need to be focused on for achievement of the plan. |
|
Key risk elements |
Defines what risk exists and how it is managed; includes market beta |
|
Downside potential (break up asset value) |
What value would be left on worst case scenario |
|
Cost base |
Describes how cost base is managed and how it could be reduced if plan values underachieved |
|
Break even |
Describes sensitivity to volume; ease of break-even achievement |
|
Forecast EBIT period end |
Defines earnings before tax and interest at planned investment end |
|
Dividend policy |
Defines payout policy during period of investment |
|
Valuation at period end |
Measures company valuation at end of investment period using agreed price/ earnings ratio |
|
Investment sought |
Value of investment and mix of funds required |
|
Interest cover |
Revenue cover for interest component |
|
Gearing |
Debt equity ratio over the period of the investment and implications |
|
Equity share offered |
Percentage of equity offered |
|
Exit potential |
Types of exit available at the end of the investment period |
|
IRR/NPV |
Rate of return to investor through standard investment appraisal methodology |