This article are provided for information purposes only, and are not intended as legal advice.


Mistakes which you should avoid when approaching an investor

November 9th, 2009

You have a business idea or found a business for sale but do not enough equity.  You need to find an investor or angel investor to come up with additional equity to finance the transaction.

 

Believing your business is worth more than it is

  • you just started the business, it has sales of $10,000 but you believe it is worth $1 million because of its potential.  You do not have the equity or cash to attain those levels of success but you believe that someone should invest money in your idea/business because they will get a huge upside.  The fact that you have little equity in the transaction, that is not relevant, the fact that you could never achieve the sales without additional cash is not relevant.   Despite the investor taking all the risk never factors into your consideration. If you can’t get there by yourself, how can you justify that it is worth so much?

 

Presentation is complex, you do not introduce the topic, what your market it, who the competitors are and why your product/business is unique.  Does your presentation show that you will end up with 90% of the market share in one year with potential sales of $100 million?  In all my years, I have only seen one negative projection but most projections are so inflated that many investors can’t rely on.

 

You have not researched your industry, who the competitors out there, what new technologies have an impact on your business in the future, have you done a test market analysis, even if it is to friends and family, get some external evidence that you have done some research.

 

Your projections are all numbers and you provide very little explanations into your assumptions.  If an investor disagrees with your assumptions, then there is no validity to the projections.  If things changes and in the future one of your projections does not come true, then the investor can see that your projections had assumptions which never came true therefore you may not be accountable for an external change to the world economy which you did not predict however, you would be responsible if you missed a very basis assumption.

 

Your presentation does not provide details of your history and your accomplishments.  If you have had 10 failures in the past, why would someone be willing to finance your idea?  You will tell them you have changed but your track record speaks differently.  Maybe you need to bring in someone else to overcome your weaknesses, if they exist.


Filed under: Financing a business — Gary Landa @ 10:06 am


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