The Basic Rules for Finding Business Investors

The Basic Rules for Finding Business Investors By William Cate When it comes to finding business capital, most entrepreneurs spend most of their time wasting their time seeking the wrong investor, making the wrong offers or making offers that won't result in the needed financing. Here are nine rules that will help you find the money your company needs to grow. 1. Define Your Target Market. Everyone isn't interested in investing in your company. Develop a profile of potential investors in your company. Angel investors rarely invest in businesses more than fifty miles away from their homes. Venture Capitalists won't invest in local businesses. 2. Have a Concise and Defensible Business Plan. Your business plan should be focused on your Target Market. It must ring true! It must show your commitment to your company's success. A badly written business plan may not render your investment opportunity absolutely unfundable. After all, someone might see the genius behind the clutter. However, any investor who regularly funds companies usually lacks the time to find the genius behind your words. 3. Hire competent advisors! You need a business attorney; an accountant and a business finance advisor. Carefully select all three advisors, if you want to raise money for your company. If you fail to do so, the odds are you won't raise any money and you might find that you are spending money to explain your efforts to State and Federal Regulators. 4. Define your niche market and focus on developing it. Your product or service may have universal appeal. However, your use of risk capital funds should be to develop a smaller niche market with the investors' funds. Spending a million dollars to develop a U.S. Market for your product or service is rarely a credible proposal. Spending a million dollars to develop a California market for your goods or services is far more believable. Focus on an achievable niche market. Use your profits to see that niche market grow to be an international market. 5. How will your investors make money from their investment in your company?' You need to clearly define your investors' exit strategy. The investors not only need their risk capital returned to them as quickly as possible, they need a return on their investment commensurate with their risk. 6. You must be willing to surrender control of your company to your investors. Most investors expect at least a 50% equity interest in your company for their money. If you won't surrender control, there is little likelihood that you have a serious exit strategy for your potential investor. Why? Because ultimately an exit strategy is about a change of control. If you won't give control to your investors, you won't agree to any exit strategy that benefits those investors. 7. Your view of what your startup company is worth is grossly inaccurate. If your company has revenues, discounted cashflow and profitability formulas are a sound basis for valuation. If you have a startup company, your cash investment plus your sweat equity is a good basis for valuation. Over value your company and forget about finding investors. 8. Your plan is local in focus You might find local angels to fund a good local restaurant, bar or nightclub. However, sophisticated investors strongly prefer risking their money on companies with a national or international market for their goods or services. 9. Keep your company's books current and accurate If your bookkeeping is a mess, forget outside investors. If you haven't kept your books in a detailed and accurate fashion before you started your money hunt, potential investors realize that your accounting won't improve after they make their risk capital investment. If they can't trace how you have spent their money, they won't give you the money to spend. Cashflow projections are rarely accurate. If your company has cashflow and your cashflow projections deviate very much from your past performance, nobody will believe them and in due course they won't believe your business plan. If you are a startup company, you are better served outlining and documenting the sources and potential of your revenue stream than trying to estimate it's size. Your goal should be to muster enough evidence to show a realistic potential of at least $25 million per year in three years after the investors' funding. If you don't have a written business plan, write one or have a professional write it for you. If you lack a strategic plan, write one or have a professional write it for you. Always remember that sophisticated investors are hiring professionals to play Devil's Advocate. Their job is to find the weaknesses in your business or strategic plan. Write your documents in such a way that there are no serious misstatements of material facts. It's possible to find naive investors for any business project. However, it often costs more money to find these dupes than they will contribute to your company. Naive investors losses billions of dollars annually. Swindlers and the starry-eyed entrepreneur spend billions of dollars trying to find these investors. You are far better served putting together a professional investment package and seeking sophisticated investors to fund your company. It's your only realistic chance of bring your vision to life.