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#6 from 10 – The FREE course for raising capital from VC firms and angel investors
November 24th, 2010 No comments
How do you know if your venture is attractive for investors?
Just a small percentage of all the companies out there are interesting for venture capitalists. The main reason for many of these is that they do not need so much capital and all the needs can be solved with a simple loan. Most of the businesses do not aim for a national or international spread. Only the venture, which aims high and has an ambitious entrepreneur and only these need venture capital or angel capital. From some levels up a debt will only bring problems along.
When in need of venture capital the tricky part is to get the first one to invest (the lead investor). This will lead to other investments in the future but your company must be attractive. In order your company to be attractive you need to prove that the business will generate enough profits and that the business will grow even if the equity of the entrepreneur will be smaller. You also need proof of you unique selling proposition that differentiates you from the competition and a definite plan for using the money the investor will give you.
All the financial bookkeeping must be in order and the business plan must be clear. Ultimately, all the investors are interested in the return of investment. If you can demonstrate that, you are on the right track.
It is not over though. You must be aware of the barriers of entry and demonstrate to the investors how you will surpass them. These are roadblocks, which you build around the customers to keep them yours and make the competition to work hard to get them. The methods to do this are various. You can add a special feature to you product that nobody else has and which is desired by the market or you can associate the brand with a star you have a deal with and people can resonate with. If you are offering a service, see how you can improve it or offer a specific service that no other company offers and do it in a better way. As long as you offer something different that people needed you are set.
A company is interesting for an angel investor if the management team inspires trust. Angel investors invest especially in companies and in the people leading the companies. If they are confident that they can grow the business this will matter immensely. They do not have to just be confident, they have to show specific results.
Do not overlook things that seem unimportant to you at the beginning like, for example, location. Of course, a lot of angel investors or venture capital firms will look for profitable ventures all over the world but most of them choose to invest nearby to be able to influence and keep an eye on how things are going.
If you got everything right by now you will get to the due diligence stage with an investor. What is that and how you can manage it correctly, in the next newsletter.
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