What are you looking for?
The starting point for deciding whether to pursue a PE deal is looking inward. Your current situation, your strengths, weaknesses and opportunities - and near, medium and long-term goals - can help you identify if, when and how much external capital you may need.
The short answer to whether you need external capital to achieve your goals will most often be yes. Software companies tend to be rapid-growth enterprises and access to funds will almost invariably be a key driver for growth phases. Depending on your company’s specific situation, you may be looking for capital to grow sales, expand into new markets, invest in R&D, make strategic acquisitions of competitors, a combination of all of the above - or something else entirely. For example, you may be looking to exit the company within a given timeframe.
When considering PE investment, or identifying strategic and business goals, the starting point is finding answers to questions such as:
- Are you looking for personal, monetary success (an exit) or to take your company to the next level?
- What are your core strengths and weaknesses?
- Why should you choose PE investment over other kinds of funding?
- How will you use the raised capital?
- How can you work with a PE firm to achieve the best possible results?
The list of questions goes on, and each needs a detailed answer to help you decide whether PE is the best option for raising capital.
Many of the answers – and definitions of goals – can likely be found in mission statements, three-to-five-year targets, SMART goals, SWOT analysis and other, similar strategy documents. If the busy day-to-day running of your company means that these documents have not recently been updated, the starting point should be doing so.
PE is far from the only way to raise capital. There are other options that each have advantages and drawbacks. They include loans, venture capital and public markets. Depending on your specific situation, these may be better suited to your business strategy and goals.
When considering potential PE deals, it is advisable to consult with your business advisor and discuss the potential opportunities and challenges each investment avenue presents. A positive side-effect of the process – whether or not it leads to negotiations with a PE firm and potentially a deal – is that it will teach you valuable lessons about the current state of your business and its future potential.