Here are the broader considerations I make when faced with an investment proposal. If you’ve got a business idea you’ve got to draw me in. I might circle around it for a while but there’s got to be some big attractions for me to fly towards the flame.
1. Does anyone want it?
Am I persuaded there’s a market? What is the burning need your idea is meeting, the niche it’s filling, the problem it’s solving? It doesn’t necessarily have to be relieving pain, it could be meeting a desire, but there has to be a market and you have to describe the fit. We probably have too many coffee shops, online fashion stores, cheap website designers, estate agents, etc. Can you give me a solid value proposition and a USP for your product or service? What makes it so good?
2. Will it grow?
Is this a scalable product or service? What makes it scalable? What are the dimensions of that? Can it grow bigger without too much additional investment? Think of it as a railway – you can make it much bigger with just more track if you’ve invested in all the rolling stock. Will you have to spend an inordinate amount of time / energy / money finding just a few customers? How will you get adoption and traction?
3. What makes it different?
Is it disruptive or game-changing? What’s novel about it? Is it easy to copy? Often the business model you’ve chosen adds to the appeal and the valuation as much as the product or service itself. Please don’t tell me that it’s disruptive when it isn’t – that’s just irritating.
4. Have you done your homework?
What market research have you done? How have you tested the need for your idea? It has to be more than you’ve asked a few mates! Have you got an MPV? What iteration have you done to get to where you are?
5. Who else is doing it?
What competitor analysis have you done? Often I find not enough. Often a founder hasn’t identified there are quite big players already in the same field. It’s a form of ‘ego blindness’. Generally, I can’t see the point in investing in copycats – no original business idea and coming from behind. We had Poundland, then 99p stores, 98p land, 97p land – they’re all in trouble.
6. Will I see my money again?
The money side – will this idea make me a good return? What sort of return? Investors dream of 5X or more in five years, or ten-baggers. In what timeframe? Early profits are often false prophets. I can wait five years or so if it’s worth it. Are you raising enough for a decent runway? Can you show that you can manage cash flow? Do you know your run rate? When do you predict breakeven?
7. What’s it worth?
Have you put a realistic valuation on the business for where you are with it? Have you researched this? Are you trying to hypnotise me with promises of AI or some distributed ledger technology (e.g. blockchain) without making the case for these? I appreciate valuation is not an exact science – but you have to justify something nevertheless.
8. Do you have an exit?
Tell me about your exit thinking. Who might buy your business? How else might it exist? Name some likely buyer companies. Why might they buy it? If you can, identify some similar exits. What would your company be valued at? How serious are you about exit? I’ll want my money back at some time. I’m not investing in your lifestyle.
9.5 Turn up
Lastly, I need to make a judgement about you. I give this more weight than any of the other elements. It gets at least the extra half point. It’s why I’m generally against crowdfunding sites because it’s harder to make decisions about founders without meeting them. I want to meet you in the flesh, not watch a manufactured video of you. How investable are you? Can I feel the passion coming from you? Do you give me confidence that you can grow a business? Confidence that you understand all the dimensions of it adequately – your technical knowledge, grasp of the finances, growth trajectory, future funding requirements, ability to work with people, your choice of the team you’ve started to surround yourself with? How determined are you? Are you committed to this venture full-time? If you’re not, you’re probably wasting my time. I don’t invest in part-timers.
I appreciate you can’t convey all of this in a pitch deck and ten minutes stood in front of potential investors – but those seriously interested in your proposition will want to meet you again. Remember, investors are investing primarily in you. Take the time to understand what they are looking for, be that solution and try not to disappoint them.
I’ve written about some of these elements in more depth – see my posts on my LinkedIn profile. I’d be delighted to discuss mentoring, coaching or a NED opportunity with you – feel free to contact me directly on firstname.lastname@example.org
My very best wishes on your journey.