Middle Market Deals and how to buy, sell and raise capital from $5 to $500 million

While giving my guest lecture at the University of Utah this afternoon, I invited the students to author a question for my blog with the promise that the best question would go up--with an answer:

Amy Schaber (shown here) asked, "What is the best indicator that a company will succeed?"

Answer:  As the question was phrased in the singular, that is, what is the best single indicator, I will answer that way.  The best indicator, though not a perfect predictor in isolation, is the management team.  What we look for is people who have succeeded before.  The bigger the better.

The investment thesis is that there is a process to creating value in an organization.  The process can be studied, mastered, perfected and most importantly repeated.  That said, the not every deal a serial entrepreneur attempts will yield value.  A great entrepreneur knows when to say enough and move on.

Amy asked a couple of follow ups:

If a company is struggling to appeal to investment bankers, what affect does that have on other potential investors?

The good news is that for early stage entrepreneurs, there is no problem if the investment bankers aren't interested.  Investment bankers generally aren't interested in early stage businesses.  The right audience for seed stage financing is angel investment, rarely organized by investment banks.  The next stage is venture capital, only slightly more likely to be arranged by investment banks.  As companies grow into rounds of growth capital, it becomes much more likely that investment bankers get involved in the placements of capital.

Are there "angel" type investors who you have built special relationships with and who you think will invest when the investment banking world will not?

There are such angels.  Virtually all angels, whether they are part of a formal or informal group or investing on their own, invest in deals that investment bankers ignore.