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The requirements for attracting outside capital have changed. There is much more focus on sales,  revenues, and a consistently growing customer base. Management teams, while extremely important in all investment activity, are becoming much more central to success.

For all companies the key to attracting outside capital, whether equity or debt, is to identify and optimize the "value drivers" of the company.   In addition, it is critical to integrate these components at the least cost.  This article describes 12 Value Drivers we have identified in our 20+ years as an investment bank and advisor to emerging and middle market companies – those that have gone beyond the startup stage.

Value Driver #1:  The Customer Base

The customer base is extraordinarily important. What is the buying trend from these customers over the past five years? What is the extent of customer churn? How many new customers have been acquired annually over the past few years? What is forecasted revenue from these customers over a specific forecast period? How stable is the customer base? What is the profile of the customer base?

Value Driver #2:  Recurring Revenue

One of the top value drivers to consider is the recurring revenue coming from the customer base. Of total revenue, what percentage is recurring? This portion of total revenue is valued more highly than so-called "one-time revenue."  Is there an opportunity to change the business model of the company to result in stronger recurring revenue?

Value Driver #3:   Product Integration

Great attention must be paid to technical platforms of different products. Even more attention and analysis needs to be completed on whether products are complementary or competitive. Product/market segment research often must be completed before a product integration advantage can be substantiated.

Value Driver #4:   Gross Margin

We believe this is most important line item on the P&L. In-depth analysis on paper needs to be completed to determine whether a company will ultimately improve or degrade gross margins. Manufacturing processes need to be analyzed to accommodate more--and presumably complementary--product sets as well as items such as customer installation/training and service/warranty commitments.

Value Driver #5:   Intellectual Property

"Intellectual property" is a catchall term meaning one thing to one person and something entirely different to another. We use the term in its broadest sense when assisting a client with a transaction. Intellectual property certainly means trademarks, patents and copyrights but it also can mean a "developed process" such as a unique way to generate sales leads and then close sales using only the Internet.

Value Driver #6:   Human Capital

Today, this area is being looked at and evaluated to a much greater extent than ever before. Today, investors look for situations where management wants to stay for the long term. Especially important is the ability to grow and scale the organization, managing through others.  An inability to attract and retain human capital in addition to the "inner circle" is essential.

Value Driver #7:    Management Experience and Expertise

Does the management tame have substantial knowledge of a specific product, process or market segment that is at the heart of the company's growth plan? Does this management team have the  capacity to grow to the next level?

Value Driver #8:   General and Administrative Leverage

Almost as important as the Gross Margin Value Driver is the general and administrative leverage that allows overhead costs to remain relatively fixed while revenues grow.  Careful planning is necessary in this area.  Management tends to underestimate the infrastructure needed for financial reporting of the type that most investors require, for example.

Value Driver #9:   Distribution Leverage

Demand should be measured through effective market research. Sales and dealer training costs need to be taken into account, and customer service expense of the new products needs to be analyzed. These are just a few of the items about this Value Driver that need to be studied. Distribution leverage is an exciting concept and a top Value Driver, but a hard look at implementation details is critical.

Value Driver #10:   History/Reputation and Operating Tenure

Especially with recent public focus on management integrity and shareholder protection, this area is receiving renewed attention.  Can every member of your management shine in an intensive background check?  Consider performing these checks internally before a potential investor uncovers an unpleasant surprise.

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