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How Much Equity Will Win an Investor’s Interest?

Entrepreneurs know the difficulty of starting out and getting your idea off the ground. Many teams spend years in the development stage, trying to perfect their idea and bringing it to life while ensuring consistent financing through crowdfunding campaigns and efforts.

Why You Need Seed Investors

However, what comes after can be described as even more challenging as it involves releasing the idea to the world. This means that your team would need to implement other crucial business-related aspects, such as marketing strategies, website optimization, and social media activity.

What was once done from a single room would now require an entire office because that’s how a business transforms. However, it’s not all easy; your team has little to no money left from crowdfunding campaigns and no cash flow, to begin with.

Since you’re officially entering the market, meager funding won’t do the trick- this calls for seed and angel investors. They invest larger amounts of capital than the average investor and are given company equity in return. Now there are a good number of seed and angel investors around, but how do you know how much equity you’re supposed to give each one?

Calculating How Much Equity to Give

It’s tricky to calculate how much of a share you’ll be giving to each and every investor, especially since you’ve just started your business venture. There’s less of an objective formula or rule that is applied, and it actually depends on a number of extraneous elements that can impact the final percentage.

Your Investor

The nature of your investor is a factor that can influence how much equity you end up giving. Angel investors are active and looking around for projects and startups to invest in. Some of them have more money and want to make a safe bet; so, they invest in numerous projects, hoping to get back a hundred times what they originally invested. If you have such an investor, you won’t have to give up much equity but remember that they will hang on to their share until it earns them a hundred times what they invested.

On the other hand, there are people with not as much money to finance various startups, so they stick to making a few investments as possible. They have to be cautious about the company they fund since they don’t have the capacity to finance many others. As a result, they’re bound to become closely involved with your company and its operations. Consequently, they may demand more equity than other investors who are betting on numerous startups.

The Market you’re Entering

The next thing to consider is the current state of your market; is it big? If not, does it have the potential to be? Look at comparable companies for an answer. In the case that your market is huge and is capable of growing further, you can better value your company at a price that’s higher than what you originally thought. In a big market, your company will get better returns, meaning you won’t have to give more equity.

How much you’re getting?

In most scenarios, investors end up with twenty to forty percent equity of the company they invest in, but this is just an estimate. Your investor will demand a portion of company ownership based on how much it will be valued at after their money is added to the value. If the company’s overall value grows exponentially after the addition of investment, the investor will demand a larger portion of equity.

It actually doesn’t depend on the amount they invest but how much of a percentage it makes up of your current value. Think of two situations; your company is valued at $1 million in one, and $2 million in the other. In both scenarios, your investor gives, say, $500,000.

Even though he’s giving the same amount of money, the impact will be different. In the first example, your company’s value grows by half, but only by a fourth in the other. This means that he’s likely to demand higher equity in the first case than in the second.

Your Potential for Success

While you may have the motivation and drive that’s required, investors are taking a risk and prefer to make a decision based on objective and tangible factors. Essentially, they’ll be looking at your company’s potential for turning out successful.

This involves thoroughly analyzing the people who helped build it and your idea. If you’re a first-time entrepreneur, it’s possible that investors will take hold of a bigger share than if you had experience. If the people you’re contracting with have in-depth experience in the investment department, they’ll make a guess as to whether your idea will work out or not.

Things to Remember

These were just a few things you could keep in mind while negotiating how much equity you’ll be giving to an investor. Nonetheless, you’re in for a surprise if you think that handing over a percentage of equity is all there is to it. The truth is that many investors, especially the ones who make one major investment rather than a number of smaller ones, will attempt to safeguard their funding i.e. ensure that it is spent wisely and results in success.

Even though it’s true that experienced investors bring a lot of knowledge to the table, they’re not exactly that rich with ideas. Due to their ventures with startup companies into various markets, they know what to watch out for but this comes at the cost of innovation and experimenting with new ideas. That’s why you should be prepared to negotiate their involvement in your company before you seal the deal.

The most crucial piece of advice that experienced and savvy entrepreneurs can give is that you should never stop at the first investor. There are hundreds of them out there, and you may actually find someone who’s actively searching to invest in your market. All you need to do is to sell them on the promising aspects of your company, but without leaking out ideas. This helps create an understanding with your investor and they’re more likely to appreciate creativity rather than stifle it.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a crowd funding campaign or get a business plan by visiting us Funded.com

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Loans Or Investors: Which Is The Way To Go?

Getting funding for your business is the top priority to getting it going. As you consider your options to procure funding, heading to the bank for a small business loan may seem like an easy solution. While banks can be helpful in their attempts to provide funding for a small business to start or even to grow, it may be remiss in providing the same level of benefits that you can receive from an angel investment.

The Business Of Banking

With a small business loan, sure you may be able to start your business quickly, but you will be missing out on the valuable advice, guidance, and experience that a private investor offers. A bank loan is cut and dry. You are on the hook to pay back the loan, plus interest, without any support backing you.

A bank has no involvement in your day-to-day operations. Their main concern is timely payments, so there is no sounding board for your ideas or help to make those big decisions that affect your operations. You are on your own without anyone to lean on when times get tough.

The Advice Of An Investor

An angel investor offers you more. For starters, they will direct their current customer base directly to your business startup, giving you an instant boost in revenue just through your partnership with them. In addition, you’ll gain the expertise of your seed investor as they offer words of wisdom and can help direct you on making those hard decisions that every business owner faces.

Your angel investor has a vested interest in seeing your business startup succeed and will do what it takes to help guide the operations in a positive way. Together as partners, you and your private investor will be able to find solutions, implement new ideas, and find ways to continually increase your customer base as well as your revenue.

Why go it alone when an angel investor can give help your business get the successful start it needs. Banks may seem like a doable option, and for some they are, but the added benefits that come from joining forces with an investor can be more beneficial to make sure your business startup is a resounding success.

More detailed information and useful advice can be found at Funded.com. If you need to access our network of angel investors or a business plan for start-up funding visit  Funded.com

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Dealing with investors: What to do before and after close II?

Private equity investors are considered as one of the most important people for those who want start or expand their respective businesses. After all, the amount capital that they provide and the way these are handled are among the factors that make or break a startup.

Unfortunately, a number of entrepreneurs think that dealing with private equity investors are limited to the period when the company or business is raising funds. Some believe that once the funding round has closed, the money will fall any time regardless of how they transact with the partners that signed a deal with them.

The reality is far from this misconception. Instead of forgetting about the investors who pledged to provide funds for the business once the money had been transferred, entrepreneurs must keep in mind the significance of giving importance to these people. After all, entrepreneurs would not want the investors pulling out the money in a middle of a crucial project.

Here are some tips on how entrepreneurs should deal with investors before and after the close of the funding round:

Before the close:

Once of the most crucial things that the entrepreneur must do during the funding round is to find the appropriate investor for the company. This would depend on the type of business that he or she is into. There are investors who prefer medical-related companies, while others want information technology startups, among others.

Regardless of the type of business, entrepreneurs must find a private equity investor or those who understand the risks of investing in the nature of the business. This would mean that the investor is willing to let go of his or her money for seven years, and put it in a rather risky and illiquid asset.

To counter the risks, the entrepreneur must explain to the potential investor the positive side of the investment – for instance the high rate of return for the successful ones.

Perhaps the most important advice for the entrepreneur is to find an investor who shares the vision of the company. This is highly relevant as it would help in the growth of the business.

After the close:

Once the agreement between the entrepreneur and the investor has been signed, the former must continue to look after the latter. This is necessary as it increases the possibility of future contributions from the said investor.

“Taking care” of the private equity investor does not take much. The business owner just has to provide regular updates – whether monthly or quarterly – to keep the investor on the loop. Likewise, requests must be kept reasonable and thoroughly explained. This will surely get the business owner on the good books of the investors.

Dealing with partners, especially private equity investors is not an easy task. However, doing this the right way will ensure the continuous flow of support for the business.

More detailed information and useful advice can be found at Funded.com. it offers expertise and assistance with developing and funding your concept. If you need to access a network of angel investors or business plans for start-up funding visit  Funded.com

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Mistakes That an Entrepreneur Must Avoid When Pitching to Investors

Very few entrepreneurs are given a chance to pitch their businesses to investors. Unfortunately, not everyone who gets a chance to talk with potential source of financial support receives positive response. The reason: they often commit mistakes when pitching their business startups.

Here are some of the most common mistakes that business owners do when pitching their companies to potential investors.

Long elevator pitches

Elevator pitches are called as such because they are expected to be short – around a minute, which is the average length of a person’s ride in an elevator. And despite being called the “elevator pitch,” there are other instances when business owners are required to be brief when introducing their companies to possible investors. These include chance meetings in cocktail parties, meetings, or even introductions between common friends.

Such cases, which often happen in informal settings, are not boardroom meetings. And while investors may be interested in the pitch, talking about it for more than a minute or two is not appropriate. Doing so may put a bad impression on the part of the investor, therefore losing a possible deal.

Business owners must keep in mind that they should save the talk during an actual pitch.

Long presentations

During the actual presentation of the business, PowerPoint presentations are often considered as God-send tools. It provides the people around the room some visual information that could pique their interest on the topic being presented.

However, business owners must keep in mind that PowerPoint presentations are used as support and are not meant to be the star of the show. Therefore, entrepreneurs must be able to limit the length of the PowerPoint presentation so as not to bore potential investors.

These people want business owners to talk about their business startups and not just read from a prepared presentation.

Made-up proposals

Business owners want to impress potential investors. However, putting wrong information on the investment proposal, for instance blowing up the exit figures to impossible proportions, often raise eyebrows of investors.

Entrepreneurs must remember that investors value business owners who present them with the reality more than those who make-up information just to impress them.

Early discussion on valuation

Investors often turn their backs on business owners who start they pitches with valuation. Before doing so, business owners are expected to introduce first the business and its operations. Investors are there to provide money, but they would rather hear about the business first before getting information on the valuation which is, technically, their expertise. There is no need to walk them through on this process.

These are just some of the things that business owners must avoid when pitching their businesses to their potential investors. Following this would make them one step closer to getting some financial support.

More detailed information and useful advice can be found at Funded.com. it offers expertise and assistance with developing and funding your concept. If you need to access a network of angel investors or business plans for start-up funding visit  Funded.com

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Mistakes That Entrepreneurs Must Avoid When Pitching to Investors

Very few entrepreneurs are given a chance to pitch their businesses to investors. Unfortunately, not everyone who gets a chance to talk with potential source of financial support receives positive response. The reason: they often commit mistakes when pitching their business startups.

Here are some of the most common mistakes that business owners do when pitching their companies to potential investors.

Long elevator pitches

Elevator pitches are called as such because they are expected to be short – around a minute, which is the average length of a person’s ride in an elevator. And despite being called the “elevator pitch,” there are other instances when business owners are required to be brief when introducing their companies to possible investors. These include chance meetings in cocktail parties, meetings, or even introductions between common friends.

Such cases, which often happen in informal settings, are not boardroom meetings. And while investors may be interested in the pitch, talking about it for more than a minute or two is not appropriate. Doing so may put a bad impression on the part of the investor, therefore losing a possible deal.

Business owners must keep in mind that they should save the talk during an actual pitch.

Long presentations

During the actual presentation of the business, PowerPoint presentations are often considered as God-send tools. It provides the people around the room some visual information that could pique their interest on the topic being presented.

However, business owners must keep in mind that PowerPoint presentations are used as support and are not meant to be the star of the show. Therefore, entrepreneurs must be able to limit the length of the PowerPoint presentation so as not to bore potential investors.

These people want business owners to talk about their business startups and not just read from a prepared presentation.

Made-up proposals

Business owners want to impress potential investors. However, putting wrong information on the investment proposal, for instance blowing up the exit figures to impossible proportions, often raise eyebrows of investors.

Entrepreneurs must remember that investors value business owners who present them with the reality more than those who make-up information just to impress them.

Early discussion on valuation

Investors often turn their backs on business owners who start they pitches with valuation. Before doing so, business owners are expected to introduce first the business and its operations. Investors are there to provide money, but they would rather hear about the business first before getting information on the valuation which is, technically, their expertise. There is no need to walk them through on this process.

These are just some of the things that business owners must avoid when pitching their businesses to their potential investors. Following this would make them one step closer to getting some financial support.

 

More detailed information and useful advice can be found at Funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.Funded.com

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Educate Your Investors: Effective Ways to Secure Business Funding

Educate Your Investors Effective Ways to Secure Business FundingSecuring the nod of potential investors such as angel investors or venture capitalists is not an easy job. Most of the time, they have the money but they are not familiar with the industry that your working for. Prior to pitching your startup, it is important that you have some idea on how you will respond to the queries of your potential investors.

Be ready to answer questions such as: What is the scope of your industry? Why should I invest in your company? How much will I get when I fund your business? What is your edge over other companies?

Being prepared to answer such questions will greatly improve your chances of securing business funding. The key is simply to make the investors understand your industry and where you are coming from. If you do that, there is no doubt that you will be able to get the venture capital that you really need.

Aside from being able to respond to the questions thrown at you, you should also try to observe the following tips on how to effectively educate your potential investors about your industry:

1. Explain your industry in a familiar manner – It is important that your potential investor understands your industry. And you can only do that by explaining it to him or her using a familiar context. For instance, if your industry is something that concerns e-commerce, then you might want to explain it by using a relatively known concept such as trade or marketing.

2. Avoid jargons – When talking about a concept that we are knowledgeable of, Continue reading “Educate Your Investors: Effective Ways to Secure Business Funding”

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Planning for Change in Business Plans

Business plans are not etched in stone; yet that is exactly how some businesses treat them. The business plans are written and then put into a proverbial drawer where they never see the light of day. One day the plan is dusted off, updated for the Board of Directors, and then put back into the drawer. This does not make sense after so much time and effort has been put into developing a plan that is supposed to establish a clear path to success.

Viable businesses never stand still. They are movers and shakers as they interact with customers, develop new products and services, and adapt to good and poor economies. When major changes happen that affect your business, it is like a time warp because everything changes from that point forward. Change is always imminent today and largely because of technology. Businesses can enter the marketplace faster and roll out a marketing program quickly on the internet.

The business plan can quickly become an anachronism if it does not plan for change. This doesn’t mean doing multiple business plans addressing all the what-if scenarios. However, change should be built in to the business plan process. First you develop a business plan based on the most sensible goals using current knowledge and expectations for the future. You can include a decision tree analysis section, if desired. However, you plan to change by simply doing an honest and regular review of the developed business plan.

It is important to have the same groups involved in the original plan development also participate in review sessions. The business plan may need to be revised, but you have identified where and how which is good strategic management.

The real issue is whether management can develop the discipline needed to make sure the business plan is regularly reviewed. Developing business plans should not merely be an academic exercise. It needs to be an important management function.

Browse www.funded.com for more advice about getting your business funded.

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Adding Internet Marketing to Your Business Plans

Incorporating internet marketing in business plans has become an imperative as opposed to an option. That probably became true when even the large storefront businesses began to do internet marketing. Judging by the number of websites, online accounts and emails sent with discounts for online shopping, the internet is playing a larger and larger role in all business models.

The implication is that internet marketing should not be a separate strategy. It needs to be integrated in the total marketing plan. It should not be a standalone subsection in the marketing plan. It needs to be weaved into the various marketing efforts, in addition to be being a unique effort.

For example, the business plan can include the development of a website and a discount campaign. However, the offline marketing efforts need to incorporate the website and the discount campaign also. For example, direct mailing of advertisements can be integrated with online marketing by developing the tactics the big department stores have successfully developed. The offline direct mail advertisements encourage online shopping by offering discounts, and the online emails encourage offline shopping with special discounts.

Of course, you can have a description in the business plan for specific internet only strategies. For example, you can discuss strategies for obtaining client leads and set goals for the lead-to-customer conversion rate, the number of transactions and the targeted average dollar sale. Yet there is still integration needed with offline marketing needed. Offline marketing will play a supporting role in driving people to the website to find the online-only discounts.

There are a number of online marketing strategies that can be addressed in business plans. They include developing the business website, participating in social media and blogging, and so on. The important point to keep in mind is that the marketing plan needs to be a cohesive integrated plan and not a disjointed set of offline and offline activities.

More detailed information and useful advice can be found at www.funded.com.  Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions.  If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out our website.

 

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Brand Your Business to Attract Investors

Investors are going to be attracted to a business that has a strong and reputable brand. When a business is ready to expand and needs a capital injection, having an established brand adds value to the business proposal. A positive brand is a business asset because it differentiates the business. That is the kind of business characteristic investors will look for as part of their business plan analysis.

Investors are well aware that brand recognition gives a company a competitive edge.  A business already established in the marketplace creates a brand image either purposefully or by accident. A brand created purposefully should reflect the positive image and reputation of the business based on the product delivered and the customer service. A brand created by accident may or may not be positive.

Branding is a message sent to the marketplace, but it can also help you deliver a message to investors. Investors know that a good brand image, even if the company is young, is important to future success. Customers are more supportive, and marketing can be more effective when the business has a solid brand image.

Branding can also be the common theme that ties together the business plan, products and services, customers and employees. It is related to the business culture and thus has specific value. Investors considering funding a business will be more likely to do so when the brand image is well accepted in the marketplace and employees can take pride in what they offer customers.

Browse www.funded.com for more advice about getting your business funded.

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Attract Investors by Improving Cash Flow Before Cash is a Problem

One of the important factors investors consider when evaluating a business plan is the amount of expected cash flow. They scrutinize the assumptions that were made in order to make a determination as to their validity. One of the lessons to be learned from investors is that you can improve your cash flow before you even have cash flow to report.

What does this mean? It means that the steps that are taken to improve cash flow for an ongoing business are the same steps that should be incorporated in the cash flow statement included in a business plan. Sound business practices can and should be used to prepare the cash flow projections. In fact, one of the first rules of cash flow is to prepare a realistic projection. Investors evaluating a business plan will carefully review the assumptions made in view of the marketplace conditions. Sometimes businesses are tempted to overstate cash flow in the belief this increases the chances of funding. However, investors have a lot of experience evaluating cash flow statements and overstatements will be spotted.

When preparing a cash flow projection, you need to consider the factors that influence cash flow during operations. The projection should assume reasonable customer terms and collection policies. The business plan should also reflect market segmentation based on products. For example, the timing of inventory purchases is influenced by the type of products sold. Cash left in the bank will earn interest that can be included in the cash flow statement, while cash invested in inventory is tied up until the inventory is sold.

These are the types of detailed analysis the entrepreneur needs to do long before a business plan is presented to investors. In other words, you want to be able to prove you know how to maximize cash flow based on realistic assumptions and best practices.

Browse www.funded.com for more advice about getting your business funded.