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Raising capital: 12 things investors want from you

20 November 2009 No Comment

By Helen Kaiao Chang

See original story on SDNN

Tuesday, October 13th, 2009

When you’re running a business, capital is your lifeblood.

You may have hundreds of thousands in accounts receivable – money that people owe you for work you have done – but if they don’t pay and you don’t have cash, you’re stuck.

Investors help provide that lifeblood. In San Diego, venture capitalists, angel investors and private investors have supplied entrepreneurs with the cash they need to operate or grow to the next stage.

In a tight economy, investors are scrutinizing deals more closely. You need to have a very tight presentation to win them over.

But here’s the secret – investors have to invest. They cannot let money just sit around. They are looking for good deals.

In my experience with businesses — either writing about them or running my own — I have found 12 key things investors are looking for. These will vary according to industry and business, but the basics are the same.

If you are looking to raise capital, this checklist may help. If you are not, this checklist can still help sharpen your business, since you are the investor.

These are the 12 key things investors are looking for:

1. The problem – What is the problem that your company solves? What are the challenges, needs, pain or pleasure that your company solves or provides?

2. The product - What is your product? How does it work? How is it new, different, better or more cost effective than other products on the market?

3. Target market - Who does your product help? Who is your customer by: age, gender, income bracket, educational level, social background, activities, habits and even aspirations. Why would they want to buy your product?

4. Market trends – What’s going on in the larger market that supports your product? Societal opinion, cultural trends and global events all play into the popularity of your product. Gas-guzzling cars are out; hybrids are in. Artificial food is out; organic food is in.

5. Competition – Who are your competitors? What companies are selling similar things as you? How much do they charge and why? Who are they going after? What geographic region are they in? What are their strengths and weaknesses?

6. Unique selling proposition – How are you different? How do you stand out from your competitors? What makes you unique in the marketplace? This is not about the size of your company; it’s about difference. When MySpace dominated the social networking scene, Twitter was a tiny upstart. But Twitter was different because it gave people real-time information.

7. Marketing – How will you tell the world about your product? What is your strategy for getting the word out there? How will you reach your target audience? This may include: marketing, advertising, publicity, social media, sponsorships, partnerships, events or any number of methods.

8. Risks - What are the danger points and pitfalls in your business? What are the barriers to entry? What makes it easy or hard for competitors to spring up and take over your business? How do you plan to overcome those challenges?

9. Management team – Who is running the ship? Investors want to know who is leading the company. Wow them with your management team’s experience, background, knowledge and accomplishments as related to the company. A stellar board of advisors can also impress investors.

10. The deal – What are you asking from investors? What do you want from the deal? For example, $100,000 in exchange for 25 percent of the company. Or $20 million in exchange for 400,000 series B shares and a board seat.

11. Return on investment – How much are your investors going to make? In what time period? For example, based on your projections, the investors will make $40,000 on a $100,000 investment in three years. That’s a 40 percent return.

12. Exit strategy – No one wants to love you forever. Investors are about making money. They do that by putting money in, getting out more than they put in, and doing the same with the next company. Exit strategies include: buyout from a larger company (the most popular strategy these days); initial public offering to the markets (not very popular now); employee buyout (not very likely). Investors want the greatest amount of return in the least amount of time, relative to the industry.

What’s the most important thing on this list? The management team. Investors know that sharp leadership is key to a successful business.

Investors are looking for leaders who have not only passion and experience, but also honesty and integrity. Can they trust their money with you? Can they count on you to do the right thing when business challenges hit? If yes, then that’s half the battle.

Follow Helen on Twitter @helenchang.

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