What institutional investors look for when they are considering investments in growing companies.
Let's be clear about one thing right away: if you want to approach institutional investors, your company should invest in topflight advisers. That means hiring a Big Six or large regional accounting firm to audit your results. You'll also need a good investment banker. "We do not deal directly with small companies; we look only at deals that investment bankers bring to us," explains Kent Weymouth of Wayne, Pa., an adviser to the $25-billion Pennsylvania Public School Employees Retirement System, the pension fund that invested in Osiris Holding. (See "A Private Placement to Die For," [Article link].)
So what do institutional investors look for when they are actively considering investments in growing companies? Inc. asked Weymouth to share his priorities:
· History: "We look for at least two to three years of growth and positive financial results," he says. An occasional downturn can be overlooked, but only if there is a good explanation of what went wrong and why it won't be repeated.
· Capital plans: "We want our investments to be used to help companies grow." That means no private placements -- for this fund at least -- if the cash is to be used to buy out management or venture capitalists or to pay off debt, rather than to support a growth-oriented business plan.
· Quality of management: "Since we don't invest to take control, we want to be sure management is well qualified and firmly committed, with an ownership stake," he says.