Longlist

What is a longlist?

Longlist (total list of possible transaction partners) denotes the broadly drawn compilation of all investors or prospective buyers who qualify for a planned transaction on the basis of first, rough criteria. It is created before the first investor or buyer is approached and lists the candidates still without a ranking. In transaction practice these candidates are usually simply called addressees. The shortlist is formed from the longlist through evaluation and selection, that is, the list of those who are actually approached. In general, longlist means any first, broad preselection from which a shorter list later emerges, for example for literary prizes or in recruitment procedures.

The longlist is the first working document of a structured transaction process. In a funding round it lists venture capital funds (venture capital), growth funds, investment arms of corporations (corporate venture capital), family offices and private investors. In a company sale it lists strategic buyers and financial investors. It is prepared by management or the selling shareholders together with the transaction adviser who prepares and runs the process. It is an internal document and is not made available to investors or buyers.

Content and structure of a longlist

Each entry links an addressee with the information needed for the later selection. A list containing only names cannot be evaluated and has to be researched a second time for the shortlist. The following fields are widespread:

• Type of capital provider or buyer: venture capital fund, growth fund, corporate investment arm, family office, financial investor or strategic buyer.
• Investment focus: industry, business model, company stage and region in which the addressee demonstrably invests or acquires.
• Transaction size: the usual range per investment or acquisition, for funds also the willingness to support later funding rounds.
• Fund status: vintage year of the current fund, remaining investment period and indications of available funds for new investments. The investment period covers the first years of a fund's term, in which a fund makes new investments; after that it generally only follows on in existing investments.
• Reference transactions and conflicts: comparable investments or acquisitions as well as competitors in the addressee's own portfolio.
• Contact person, route of access and source: the responsible person, a possible introduction through shared contacts and the origin of the information with date.

The information on transaction size saves most misdirected approaches. A fund whose first investments are usually between EUR 10 million and EUR 30 million does not, as a rule, take part in a round of EUR 3 million. An investor that invests mainly in early stages, conversely, rarely leads a Series B, that is, the second larger growth round after the Series A. Source and date are necessary because focus areas, funds and responsibilities change continually.

Sources for the longlist

A reliable longlist draws on several sources, because each has gaps on its own:

• commercial transaction and investor databases as well as public fund directories,
• published funding rounds and company acquisitions of the company's own and neighbouring industries from recent years,
• shareholder lists of comparable companies, which can be retrieved from the commercial register and show who holds interests there,
• customers, suppliers, competitors and technology partners as possible strategic buyers or investors,
• the network of founders, existing investors and advisory board as well as addressees that have already shown interest of their own accord.

Existing investors have a double significance here. They know the funds that invest in the next company stage, and their recommendation carries more weight with those funds than a cold approach without prior contact.

Longlist in funding rounds and company sales

Funding round

In a funding round, what matters above all is the fit between capital requirement and investment strategy. Besides the lead investor, who leads the round and negotiates the terms, a round often needs further investors who join with smaller amounts. The longlist therefore records both roles separately.

Company sale and succession

In a sale the circle is wider and at the same time more sensitive. Strategic buyers are sought according to the logic of their own business: competitors, providers of adjacent products and customers and suppliers who want to extend their value chain. They can build synergies into their price. Financial investors (private equity) come into consideration as a first investor or through a portfolio company that wants to make add-on acquisitions. In a succession, candidates for a management buy-in and family offices with a long investment horizon are added.

For each addressee it is also recorded whether an approach could affect the ongoing business, for example because the interested party is at the same time an important customer or supplier. This information helps decide later in what order and with what level of information the addressee is approached.

Rough filter and blocked list

Between research and evaluation sits a rough filter. It sorts out entries that fail a hard criterion. Hard criteria are, for example, a transaction size outside the usual range, a focus unrelated to the business model, a fund without available funds or a direct competitor in the portfolio. The criteria are set in advance and the decision for each entry is documented, so that the sorting out remains traceable.

In addition, companies keep a blocked list of addressees who are not to be approached. Reasons are, for example, competitors who are not to receive confidential information, customers whose relationship would be burdened by a sale enquiry, or earlier discussions that ended without result. Acquisitions by foreign investors or buyers can in certain industries be subject to an investment screening under foreign trade law, which extends the timetable.

Practical example: longlist for a Series B round

A software company with EUR 6 million of annual recurring revenue plans a Series B round of EUR 15 million. The research yields a longlist of 180 entries. The rough filter works step by step as follows:

1. Starting stock: 180 entries
2. First investments usually below EUR 3 million or above EUR 50 million: minus 60, leaving 120
3. no focus on enterprise software: minus 35, leaving 85
4. current fund without available funds for new investments: minus 20, leaving 65
5. direct competitor in the portfolio: minus 8, leaving 57
6. management's blocked list: minus 5, leaving 52

The remaining 52 addressees are then evaluated against weighted criteria. Around 30 of them reach the shortlist, separated into possible lead investors and investors who join. Of 180 researched addressees, therefore, only about one in six is actually approached. The entries sorted out remain in the list with a reason. If a fund manager sets up a successor fund during the process, its entry can be retrieved without new research.

Distinctions: longlist, shortlist, blocked list and pipeline

• Shortlist: the evaluated and prioritised selection from the longlist. The longlist collects, the shortlist decides.
• Blocked list: register of addressees that are expressly not approached. It is kept alongside the longlist and checked before every approach.
• Investor or buyer pipeline: the ongoing tracking of discussions with addressees already approached, usually in a CRM system. It begins where work on the longlist ends.
• Auction process: the structured sale process with several interested parties. The longlist is its preparatory work and determines who can be invited at all.

Common mistakes

• Narrowed too early. Anyone who includes only well-known names overlooks addressees outside their own network who fit the business model better.
• No information on transaction size. Without it, discussions arise with addressees whose investment strategy rules out the round from the outset.
• Strategic buyers forgotten. A sale longlist that contains only financial investors leaves out precisely the buyers who can price in synergies.
• Fund status not checked. A fund at the end of its investment period still holds discussions but hardly makes new investments.
• Source and date missing. At the next update it can then no longer be checked whether an entry is still accurate.
• Passed on externally. The longlist contains assessments of third parties and belongs neither in the data room nor in documents for investors.

Frequently asked questions

What is the difference between a longlist and a shortlist?

The longlist collects, without a ranking, all addressees that in principle come into consideration. The shortlist is the result of rough filter and weighted evaluation: the shorter, prioritised list of those who are actually approached. From 180 entries on the longlist, about 30 end up on the shortlist.

How many entries does a longlist need?

Enough that after the rough filter there are enough suitable addressees left for a shortlist. For a funding round from Series A, more than a hundred entries are often needed in practice, because a large part fails on hard criteria. In a company sale, the number depends on how many strategic buyers the market in question knows.

How long does it take to prepare?

With access to a transaction database, as a rule a few working days; without such access considerably longer. The greatest effort is caused not by collecting the names but by checking focus, transaction size and fund status for each entry.

Should competitors be on the longlist?

Yes, initially. Competitors often have the greatest strategic interest in an acquisition. Whether and when they are approached is decided separately, because in the process they would gain insight into customers, prices and staff.

Who receives the longlist?

Only the innermost project circle of management, shareholders and advisers. Because the list contains assessments of third parties and personal data of contact persons, it is treated confidentially; the General Data Protection Regulation (GDPR, in German DSGVO) applies to the storage of the contact data.

Can a longlist from an earlier round be reused?

As a starting point yes, as a substitute for a new review no. Between two rounds, fund managers set up new funds, shift their focus and change contact persons. And a list from the Series A rarely fits the transaction sizes of a Series B.

The Roemer Capital view

Roemer Capital prepares the longlist together with management before the first addressee is approached. Founders know their market, customers and competitors best. Roemer Capital adds, for each entry, investment strategy, transaction size and available funds and records the blocked list in writing from the start.

In funding rounds from EUR 1 million, from Series A to Series C, Roemer Capital separates possible lead investors from investors who join. In a sale process the main question is which strategic buyers will carry the price and which addressees, for reasons of confidentiality, are approached only later or not at all. A funding round typically takes six to eight months, a sale six to twelve months. Follow-up research during an ongoing process would extend this timeframe; the field is therefore fixed before the first approach.