NEWS // "Selling the Sizzle, not the sausage!" - What are investors looking for? (continued)
Investors want to invest in a company that has the potential to give them a very high return on their investment. Doubling their money in a three to five year timescale is not good enough because out of every ten investments made by the investor there will be a number of failures and non-performers within their portfolio and the winners will need to give the investors a high enough return to cover these other deals. A multiple of between three and ten times the investor's money back will be more in line with what an investor is looking for.
Your company needs to be "best of breed" and have a key advantage over the other companies in the market place. This doesn't mean that your product must have every imaginable bell and whistle that other competing products don't have. Many of these can wait until the version 2 release. Many technology companies make the mistake of over-developing their products and not getting them into the market place quick enough. Many technical teams are perfectionists and forget that if you are not selling products you will be burning your investor's money!
Investors like "IP" (intellectual property) and in particular patents which give companies monopoly rights to sell their products in geographical markets. If your company has important technology make sure you have done your homework about what needs to be done to protect the intellectual property rights and speak to your advisers (patent attorneys and lawyers) about this at the outset.
The investors want to see a team (or the makings of a team) that are capable of delivering the ambitious targets set out in your business plan. They will want to see founders that are also committing funds to the deal and you can expect to have to sacrifice past salary or convert director's loans into shares to show that you are totally committed to the cause. Investors rarely want to invest in companies where the founders are not driven and prepared to take a risk to get the deal over the line.
Customers and letters of intent are essential to help secure investment. Although equity investment is high risk, investors don't like taking any risk if they can help it! They will want to know that you have customers lined up but better still using your products or services.
Work on your pitch
Some companies have great looking business plans and teams with people with impressive CV's, but they often let themselves down badly with poor presentation skills. You just have to watch a few episodes of "Dragon's Den" to get a feel for those people who perform and sell their business idea much better than others. Investors often form the view that if you can't sell a proposition to them then what chance do you have in selling your products to customers. Make sure you have the right person in your team making the business pitches.
For further information please contact Stuart Hendry on 0131 226 8203
or email stuart.hendry@mbmcommercial.co.uk