Around 97% (or 40,000 companies) of local Lebanese businesses are Micro (less than 10 staff), Small (less than 50 staff) or Medium-Sized (less than 100 staff) Enterprises (MSMEs). These companies are the pillar of the Lebanese economy as they provide job opportunities for more than 50% of employees in the private sector.
Several challenges are facing MSMEs in the region including access to funding, access to markets, access to talents, access to technology and innovation, access to transparent regulation, access to better facilities and infrastructure and access to sound advisory and coaching/mentoring services.
The most critical challenge by far is access to funding sources (grants, debt, semi equity and equity) as only 2% of the total bank loans goes to MSMEs in the region and more than 70% of the MSMEs have a tough time becoming bankable and obtaining badly needed funding sources.
As thousands of MSMEs are in the process of raising debt and/or equity capital with Business Angels, Venture Capital/Private Equity funds, banks and the pool of 3Fs (Family, Friends and … Fools), one question keeps coming up again and again….
What are the foundation blocks for becoming investment-ready to face potential investors and convince them to fund my venture?
Having advised dozens of companies in their transformation and fundraising journeys over the past 30 years, I [Constantin Salemeh] have compiled a list of the following 12Ms to help answer the investment readiness question. Feel free to get back to me in case you would like to validate your venture’s 12Ms and fine-tune them to the audience of investors that you are targeting. The better prepared you are, the more effective you will be in convincing potential investment partners to join you as shareholders and accelerate your value-creation potential.
12Ms to help answer the investment readiness question
1. M for a clear, comprehensive and shared Mission
Why do you exist, who are your customers, what benefits are your products or solutions bringing in addressing the existing pain points of your clients? Your Mission statement should be concise and impactful creating an emotional link with your stakeholders (shareholders, employees, customers, suppliers and partners).
2. M for a complete and competent Management team
This dimension is a critical one as most investors invest in people first and want to make sure that the management team can execute on their value creation plan. You need to make sure that you have a complete and diversified team with cross-functional expertise (technology, finance, sales, operations and marketing) who can work together and overcome the many challenges of the transformation journey ahead. In case your management team is still not complete, it is recommended that you surround yourself with an advisory board with expertise related to your main pain points (validation of your MVP, scaling your venture geographically, raising equity capital, strengthening your brand equity or hiring and retaining top talents).
3. M for a proven business Model with a track record of value creation
Your business model describes how you deliver your products/solutions to your target markets in a cost-efficient way while addressing the needs of your clients with a clear advantage compared to your key competitors. How scalable is your business model and what are the possible bottlenecks for consistent scalability?
4. M for an attractive Market with a strong profitable revenue growth potential
How large is your market, what are the barriers to market entry, how fast is your market growing, how do you segment your market and select your target segments? What are the profit margins (gross profit and operating profit) that you can generate in your target markets and sustain them over the next few years?
5. M for a differentiated Mantra and customer value proposition
This is another critical dimension as investors are always looking for innovative or disruptive products with a clear competitive differentiator. What make your products or solutions unique and how can you sustain these competitive differentiators over time. The clearer is your Mantra, the stronger are your chances of attracting investors.
6. M for realistic and timely Metrics
It is important for your venture to be accountable for a selected number of clear Key Performance Indicators or KPIs (revenue and profit levels, number of new customers, Net Promoter Score, reject rate and renewal/closure rate) that best describe the state of your business. These metrics need to be agreed and reviewed with your investors and reflect the measures of your venture’s most important processes. You need to make sure that the metrics are realistic and can be tracked in an automated way minimizing potential bottlenecks in gathering them.
7. M for SMART Milestones
Another important foundation for your venture’s investment readiness is your ability to define and execute on Key Strategic Initiatives (KSIs) or Milestones that will help you deliver on the above KPIs or Metrics. These Milestones need to be SMART (Specific, Measurable, Attainable, Relevant and Time-bound) and owned by most of your team members to ensure alignment.
8. M for regular Monitoring
The above Metrics and SMART Milestones must be reviewed on a regular basis (either monthly or quarterly) to ensure that there is a clear level of accountability and effective execution on the agreed plan. Failure to review the KPIs and KSIs on a regular basis will send the wrong signals to potential investors in terms of poor follow-up and half-baked execution.
9. M for intelligent Money to fund transformation
As you raise money (either debt or equity), you need to screen your investors and focus on the ones who have a real value-added (intelligent Money) to help you address your key challenges or pain points. These challenges include opening doors, helping expand geographically, sector expertise, functional expertise (technology, sales, finance, operations and human resources) and access to funding. It is preferable to select an investor that offers you a lower valuation but that can provide you with an accelerated transformation through innovative value-added services, instead of a passive investor with a higher valuation but with no strategic contributions.
10. M for comprehensive risk register and Mitigation plan
Founders of ventures often forget to build a repertoire of the key risk areas that might impact their ability to execute on their transformation plan. It is always important to list these risks, prioritize them and develop an effective mitigation plan for the high impact risk categories with a high probability of happening.
11. M for emotional Maturity and succession planning
Few founders have the emotional maturity to accept and embrace mentoring and coaching services from new investors as they believe that they are on top of most challenges faced by their ventures. In addition, a handful of founders will realize that their company might be better off with another CEO at the helm and embrace a succession planning process.
12. M for contagious Motivation and passion
A final dimension that influences investors is the level of passion and motivation that permeates from the founder, the leadership team and the entire staff. There is no better foundation block for investment readiness than having a motivated team, speaking of ONE VOICE, heading in ONE DIRECTION and acting as ONE team.
Berytech Advisory Service
As indicated earlier, it will be a pleasure reviewing the above 12Ms with you and your leadership team to help you be better prepared to select the right investor for you, understand your key investment readiness gaps and address them together. This advisory service is offered by Berytech as part of our Business Support Services to the entrepreneurial ecosystem in the country.
About the author
Constantin Salameh is a Senior Investment Advisor with Berytech & Agrytech and a member of the Investment Committee for Berytech Fund 1 and Fund 2. He funds and sits on the board of several companies in the EMEA region.