HOW TO CREATE A CAPITAL PIPELINE: Pipeline is Not Revenue or Closed Transactions!
When seeking capital to grow, having a pipeline to support goals is often the key between obtaining attractive capital partners or not.
A pipe line supports and gives validity to growth plans including:
- obtaining first revenue
- accelerating existing growth
- launching new businesses
- launching new or follow on funds
In some ways a supported pipeline is even more important than a track record for successful capital transactions since a track record is history and pipeline is future.
“How Can I Have a Pipeline Without Capital?”
Said By …. Many Capital Seekers
It is important to remember that pipeline is not revenue or closed transactions. Pipeline is an indication that projections will be met.
There are several levels of pipeline, and each additional level adds to Capital Provider comfort that projections will be met (see Figure 1 below).
Pipeline is also a numbers game – the more that the pipeline exceeds projections, the greater the odds that projections will be met (ie: a greater percentage of the pipeline does not need to close to meet projections).
A Capital Provider will do a risk assessment of the pipeline to see if it seems likely that it supports projections. The higher the level of the pipeline – the smaller the number of pipeline needs to be to be determined to be credible support projections. The lower the level of the pipeline – the larger the number of pipeline opportunities need to be evident to credibly support projections.
FIGURE 1
| Pipeline Level | Description | Amount of Pipeline to be Credible |
| 1 | Signed Agreements | A low number of Signed Agreements since there is a signed agreement in place and it is highly likely that agreement terms will be met. |
| 2 | Signed Term Sheets/LOIs | A medium number of signed Term Sheets/LOI’s since there has been an agreement in principle on key terms and timing. |
| 3 | Term Sheet/LOI Discussions | A medium/high number of Terms Sheet/LOI discussions since key terms and timing are now being discussed – but these are still discussions. |
| 4 | Discussions | A large number of pipeline discussions must be evident to have a convincing pipeline since many interested parties fall off after understanding key terms or timing. |
| 5 | No Pipeline | Not Credible – Capital Provider must rely on track record and other indications. |
| Level 1 is “High Level” | ||
In building a pipeline there may be multiple pipeline levels in one pipeline since there may be one prospect at level 1 and 40 prospects at level 4.
Most importantly, keep track of all pipeline levels since they will all be able to articulate support for any projections by demonstrating “live” and “real” interest that supports goals and plans.
