Why competitive analysis is highlighting the changing investor appetite landscape In many industries, it’s clear that there’s difficulty establishing an effective investment strategy. And understanding the changing landscape of investor appetites. The situation comes down to the achieving expectations of the cash injection without: |
Properly conducted due diligence Competitive understanding and analysis A basic understanding of the needs and expectations of the investor. Appreciating the importance of finding the best investor(s) for a win-win relationship More than just a business plan Owners are all too often chasing money without any of the following put in place:
A profile in each case of the investor demographics to build exact fits in both directions Understanding investment modelling and fit (alongside existing investments and other financing). Term sheets and dedicated proposals to match identified investor appetites Without these considerations, it’s an almost impossible task to get a meaningful investment. Outside of striking a lucky hit.
What is Competitive Analysis?
Competitive analysis determines the attractiveness, customers, competitors and the dynamics of a particular market within a specific industry sector. Develops an understanding of the relationship between supply and demand, strengths, weaknesses, opportunities and threats for your product or service to enable you to make more informed decisions about potential marketing strategies. Investment pitches come across our desk all the time. Mainly to conduct due diligence and competitive analysis before investors see them. The presentations we see are often more suited for PR events or awareness-raising, and very few are seriously geared towards attracting successful investment.
Colder feet It is likely to worsen with investors getting colder feet in many sectors. Also, many value propositions seem slightly behind the current curve. Why? Well, because the seismic changes have not been evaluated quickly enough. The change in appetite in certain areas was previously seen as sacrosanct—for instance, many environmentally friendly propositions are no longer perceived as such in the sustainability sector.
IoT is now far less the crowd-pleaser it was once was in many investor circles. SaaS models are being looked upon from different perspectives. And areas like carbon capture and EV are less of a perceived cash cow. Plus, the lack of recyclable materials within solar or wind hardware, some of which are shockingly un-environmentally friendly. Investors are starting to see things differently now.
Why competitive analysis? No demonstrable valuations of their competitors’ market It’s common to see proposals without demonstrable valuations of their competitors’ market impact. This lack of insight isn’t likely to inspire even well-focused innovation investors. All these aspects need to be understood to ensure long term investment validation.
The next few years will see a different appetite for enterprise investment. Especially in unqualified potential market volume. Not because it isn’t a legitimate potential, but it’s more likely to become the domain of the larger investment groups. And they will have little interest in the previous business investment journey. Despite who owns the IP, they will ‘acquire and absorb’. And in the coming challenging times, the volume of tactics such as these will grow.
Inflation, Saudi Aramco and Apple We are seeing rising inflation. And as a result, the Fed and the Bank of England and others will likely raise interest rates at a swift pace. When interest rates rise, investors are discouraged from investing in innovative technologies. Expected inflationary impacts hitting future revenue expectations will promote a run to commodities. For this reason, Saudi Aramco has taken over from Apple as the world’s most valuable company.
With a diminished focus and appetite for incubators like Y Combinator, Silicon Valley has already shown this. There hasn’t been a true unicorn success in the previous model for a long time.
As always, the founder’s mindset is a significant concern. Investors tend to approach a deal by looking to understand their ‘exit’. In other words, how, when and what they will get when they cash in their interest. They then look for ‘the fit’. So they forecast their money flows. And the time and resource burdens on their business model. Then calculate the amount of control, management and leadership that will be required.
Then they look at the marketplace to understand:
Assessing the growth, the threats and the possible pitfalls IP ownership Macro changes The broader socio-political landscape And how all of that fits their values Capable and compliant All in all, in order to be able to accomplish any of their goals, they need capable and compliant founders. Supported by outstanding management teams.
If the investor is an HNW individual or family office, they may have reputation issues too. If the investor is a corporate entity, they will have stakeholder values to also account for.
Investment seekers need to understand that it’s unworkable if they have these traits:
Inflexible position of valuation/worth Fixed mindset (on culture, management, existing systems/practices/their role etc. Inability to listen and understand there are competitors within their target market Overinflated valuation of the current business/its potential/its rate of growth Overconfidence in competitor threat potential. The market interest in scalability A tendency to ‘rule’ instead of ‘lead’. Underpowered or overpowered vision or aspirations. Unwillingness by the owner to exit or an agreement made as to the timing of their exit. Corporate career We have met enthusiastic people planning an exit from a corporate career. They have great ideas and aspire to set up their own business. All too often, they make similar assumptions. For example, they seek funding straight away. But seldom do they quickly transfer out of the corporate mind-state. In the very different non-corporate world, where no big budgets, safety nets, or assurances exist. And they find themselves in entirely alien territory.
The ones that do make it have a crystal clear vision of the value they deliver. They display leadership, intuitive understanding and calm resolve. And, of course, a vast and relentless work ethic.
It is not easy. The real challenge for investors regarding founders or existing owners are:
Re-align expectations of owners Precisely define the investment and support/advisory needs, and get consent from owners. Match up investors who are identified with compatible interests Carefully chaperone the connection (and be safely contracted accordingly) Have a suitable fiduciary entity from which to do the above. Why competitive analysis is highlighting the changing investor appetite landscape In conclusion, it’s evident that there are many challenges when it comes to investing. It’s important to stay up to date on the latest industry trends and be mindful of investor preferences. By doing so, you can establish an effective investment strategy that will yield positive results. We live in a space that ensures that investors and owners are aligned. Matched in expectation, possibility and capability. Contact us, and it may be the smartest decision you make.
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