Ask the Expert: Approaching Investors

Q: I am at a point in my business that to grow it the way I would like, I need to seek outside funding. I do not want to give up control or the majority of my company. What advice would you give as to how to prepare for and approach investors?

ND:  First, watch all of the episodes of “Shark Tank” that you can on the internet. The sharks are sort of "Angel" investors who will invest in the businesses that come to present. Anybody that you may partner with will ask the kind of questions that they ask the business owners on the show. I can't watch this show without giving my 2 cents to the owners or the sharks.

You MUST know your numbers:
Gross Revenue=total number of $$$ brought in annually
Gross Profit=the difference between the total sales and the cost of goods (COGS)
Net Profit=the amount of money left after all bills are paid including COGS, Sales, Marketing, Advertising, Labor (including your wages), Administrative, and General expenses (ie.legal, accounting, office supplies).

You can break it down simply like this example from a real product business:
COGS   60%
M&S     15%
G&A     15% (10% is labor)
Profit     10% (then subtract 40% of this for Taxes)

When you know what you are spending, where you are spending, and why you are spending and can show a profit, then you are golden! Move pass GO, collect $200 and let's look at what you can get now.

There are 4 main types of money:
-Friends and family
-Angel
-Venture Capital
-Bank notes

When you take funds from anybody you have an obligation to pay that back in a reasonable time and with a reasonable return (or interest). Each lender or investor will have their own parameters.

Please be cautious and think of the worst case scenario if you lost the money that somebody invests in you. What are the consequences? Could you damage a valuable relationship? Could you lose your home?

If you do not show a profit, then it is unlikely that you will be able to get an investment without taking a minority position. The person who is investing needs to know that their investment is protected. Call your local M&A (merger and acquisition) firm to see what going valuations of businesses like yours is right now. Valuations are currently quite low in most industries.

I bet the farm on BabyLegs, and it's paid off. Not everybody is so lucky. Make sure you have 3 points that you will not budge on in this deal and come to the table with 10 points so that you can give on some that don't matter to you. Proceed with caution and remember that as Malcom Gladwell says "If you work hard enough and assert yourself you can shape the world to your desires".

Pages:
1. 1