Investment Readiness – Investor Concerns That Founders Should Consider

Hello Unicorn Founders,

We understand how important capital is to the establishment of a business. You know, capital is somewhat like a trigger; while your God-given solution is as a loaded gun. In trying to secure the required liquidity for your creative enterprise, we recommend that you consider the following to “get into the mind of a potential investor”:

• Deal Economics. Nothing is impossible to come by in our world of today, but I do not know of any actual homo sapiens that does not want to be profitable. Even God is keen on profitability. Founders therefore have to understand that every investor wants to get “a big enough slice of the pie” to make their proposed investment in your business venture worthwhile on a risk adjusted basis. Essentially, as a founder, you want to make sure you have done your due diligence on the financial aspects, traction, scalability, workability and metrics of your solution. You want to examine the various financial components of your solution to wit:  sales, revenue, purchase price, valuation, cash flows, expected returns, cost of capital, and other financial metrics relevant to your business venture – to ensure that your venture does not just generate revenue, but it is in fact profitable. This is crucial because it provides the basis for decision-making to examine the feasibility, performance and the attractiveness of a proposed deal. With respect to risk assessment, deal economics is key because it enables investors to identify, examine and allocate risks in their decision making process. Deal economics also helps with reaching a startup’s valuation. In a lot of words, what is in it for potential investors?     
• Governance, Management and Control. A father who is invested in his child’s education definitely wants good ROI evident in the child’s results and brainpower. To this end, it should not shock any soul when such father is on the child’s toes – ensuring the child applies himself to coming out in flying colors. The same principle applies here. A person who has skin in the game is more likely to be very concerned about the game in question. A typical investor wants to know that monies invested are appropriated judiciously and appropriately. An investor typically wants to have a say in critical decisions. Wisdom is then required to know when and where to draw the line on an Investor’s ability to make a decision in an investee company. However, an investor requesting for a board seat or an observer seat at your Company’s decision making table is not unusual.
• Exit and Liquidity. When trying to raise funding for a business venture, founders have to pay attention to their business model and the attendant funding model that works best for their business. It is worthy of note that should a startup desire to opt for venture capital, such founder has to have at the back of his or her mind that venture capital is exit-focused. A founder who has conducted his or her due diligence will be able to clearly communicate exit opportunities to potential investors; particularly as stakeholders are keen on maximizing their chances to recoup their returns in all possible exit scenarios, even if they have to force such situation to occur.
• Investor Rights & Protection. Particularly when it comes to venture capital financing, financiers want to ensure that the terms of a future financing deal does not contain clauses that diminish the value of their prior investment or lead to a later investor enjoying a superior liquidity position, without paying adequately for that superior right. This is the reason why many investors introduce “A Most Favored Nation” clause, or an “MFN” clause to protect an investor by giving such investor the same rights and benefits received by later investors- if those rights and benefits are more favorable than those originally agreed. This way, the initial investor is given comfort that such investor will not be disadvantaged compared to other investors in subsequent rounds- thus maximizing the investor’s potential returns.

Essentially, founders have to be sure their “big idea” is monetize-able and profitable, to say the least. Possessing actual “traction” before an investor comes onboard is even a bigger plus. It is advisable to pay attention to the deal economics, governance, investor rights & protection as well as exit opportunities before you, as a Unicorn Founder, meets a potential investor.

About the Author

Taiwo Lawal Esq. is a corporate and transactional lawyer. With about half a decade’s experience servicing startups, she is the founder of Unicorn Valley Law, doing what she loves the most- providing bespoke advisory from the “well of water” within her.

Taiwo is happy to read from you and provide bespoke solutions to your startup’s legal and commercial needs. Kindly schedule a call via calendly here: (get in touch).