If I had a nickel for every person that has come to me asking for investor help I would be able to invest in their business myself. Seriously though, most people don’t have a clue what to ask for, what their business is worth or what to offer an investor once they have a live one in their hands.
A recent client asked me for help to secure an investor for an interactive children’s website. With the excitement generated by Angry Birds it is a hot market. I asked how much he wanted and he said a million. A million bucks? He had no cost analysis to back up the price and only said that it sounded like a great price for an incredible website experience. Hmm wrong attitude guys. You need a detailed costing of exactly how much you will need to produce your product, an analysis of what revenue model will work as well as the projected revenue streams and a plan to make your investor not only the money partner but an active one as well.
You need a feasibility study and/or a business plan. A well produced conservative business plan will give you the credibility in the eyes of the investor for him to make an educated consideration whether he wants to put money in your hands. People also fail to consider that most investors I know will invest on the gut feeling they feel for the presenter. If you come across as a humble, logical person who has done your homework you will pass the first hurdle with an investor. Of course without the paperwork even the most genuine of you are unlikely to get a nibble from an investor.
Scalability is the way to have an ace up your sleeve. A client went to the bank looking for $150k to do a minor expansion in his warehouse that would make a considerable change to his margins by adding two lines of production people. The problem? The bank wasn’t buying his evaluations and felt he might not be able to manage the payments. They offered him $100,000. Does he turn it down because it wasn’t what he wanted? Not on your life. I had helped him develop a plan anticipating their reaction whereby we would scale the project down to keep pretty much the same space while still adding a second shift of workers not an entire production line. He got the money as a loan.
Bankers and investors are a diverse lot for sure. This brings the inevitable question of do you go to your local bank and get a loan, do you get an investor to buy into your business as a loan at a higher interest rate or do you give him equity in your company. Knowing your exit strategy puts control in your court.
I like to have an active investor; one who will give you money for a share of the company because now he has a reason to help you make it work and if he is willing he can give you his expertise as part of the deal. Sure as heck, more money will be needed and available if your investor has a hands on attitude to your business success. To further clinch the deal I like the investor to have a firm hold on the finance of the business and usually suggest he brings his own Chief Financial Officer (CFO) as part of the deal.
Don’t be afraid to give up control to the right investor. He’s not about to mess up the business with his money in it and you are more likely to make money with his involvement. My attitude is 50% of nothing is nothing. I’ve seen so many guys fear the 51% rule only to lose a great partner. The funny thing is if you are running the business really well and are indispensable you are still in control of the business.
If you want to get investment money you need to plan, anticipate and be ready to negotiate. Amid all the doom and gloom out there I totally believe there are lots of guys with big money looking for a good deal.