16.09.2009 13:57:51 |
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Being involved with entrepreneurs and
business investorsbusiness investors on a regular basis now for almost a decade, it’s clear that although the financial and business landscape changes constantly, Investors needs don’t. Speak to most of the
angel investors, micro finance providers, venture capital firms and entrepreneurs who have taken part in successful negotiations for gaining business investment or providing the same they will all tell you the same thing. When meeting with potential investors, if you are an entrepreneur who wants to walk away with a positive agreement you will need to have done or produce at least the following three things.
Market research
Market research at a very basic level will tell you if those who you think will be your clients are interested in your product or service. Irrelevant of how exited you are about your business idea and how many of your friends and family have shared your excitement with sympathetic nod and grin, if you have not spoken to potential clients who have said they will be happy to part with their hard earned cash for your new product, the simple fact is that you simply don’t know.
What is that you want to know at this stage?
Are your potential clients interested in your product?
How much will they be prepared to pay?
What about the product appeals to them?
Where will they look for your product or buy it?
Where do they currently look for similar products?
Investors will be interested in the information you have produced during this process. If they are new to your industry then positive responses here is what will give them confidence.
Know your numbers
The numbers behind your business is what investors are listening for while you are talking about your dreams and vision for the business. Costs are important. Will you be able to cover your costs to start with? How will the production costs – if it’s a manufacturing business and staff costs and other overheads when it’s a service based business effect the eventual price of your product and more importantly will there be enough leverage there to allow for a healthy profit. Investors are listening for information to tell them that the money they are putting in will be coming back with interest. The higher the risk you are asking them to take the more attractive the return will need to be.
Business evaluation
The final bit of information that they will be looking for is the valuation of your business. If they are asked to part with their cash for a stake in your business then what is the size of the stake that you are giving away. Be realistic with your valuation. For a new business the valuation can be based on the potential indicated by the market research, information on competitors and that they have created, other issues such as pre-orders generated, patents and the size of the market. Once ht business has been trading it will be much easier to value it as trading figures, assets and actual amount of clients can be used. When it comes to evaluation this can be used to negotiate with investors but going in with to high an evaluation to start with may loose you any chance of a deal to start with.
With banks becoming more risk averse in recent times,
business investors have become a much more attractive option for many entrepreneurs. If you are an entrepreneur looking for business investment, make sure you have done your homework by the time you get to speak to investors.
