Sunday, 30 December 2007

What investors look for - on Dragons Den

Looking beyond the rough and tough entertainment of Dragons Den - here is what I took from the Christmas edition of the programme.

If you want to secure investment for a new idea or business and need to make a presentation to a group of Business Angels you will need to get yourself ready.

Going on TV is not the only way to raise money! See for example:

But wherever you go look for money you will need to make sure:

Your pitch needs to work

Get your pitch - presentation - to be excellent. You need clarity; a charismatic presentation and ensure you build your credibility through the pitch. More on this through the rest of the notes.

Appearance - look professional. Make some effort at this

Your presentation needs to be evidence based, succint and your own demeanour needs to be such that the investors take a liking to you. Because no matter how good your idea - if they do not like you for what ever reason - they just won't invest. It is their money!

The content of your pitch

Make sure you have a grasp of your figures. It is no good denying your knowledge of numbers. It is not rocket science. If you do not understand them - make sure you get a good quality tutorial from someone well versed in finance - especially in raising money.

Ensure you have a grasp of who your customers are - not just the overall market place. Go read a book on marketing if you do not understand the importance of this. Perhaps Geoffrey Moore's book - Crossing the Chasm will help you. Book shops are full of useful materials. As indeed are local Business Schools, full of bright students who can get some market research done for you.

If you are in a buy and sell or a make and sell business - ensure you know what the costs, sales prices, profits and volumes all mean.

If you are in a service business - where you are selling time - see how best you can generate enough sales to realistically cover your time and all the various incidental costs.

During the meeting

Be clear

Listen to the questions - make sure you understand them

Answer carefully - not impulsively

Avoid arguing or begging

Try not to avoid answering the question or become evasive - it only gets harder to retain credibility

Be realistic

There are two ways of gaining immediate attention from an investor - real customer interest in sufficient numbers or of sufficient calibre - to make it realistic. This is a very clear way of reducing the percieved risk.

When it comes to getting a valuation on a new company - bear in mind that what ever money you ask for - you will have to give away some of your equity - the question is what proportion of your company will you give in exchange for the amount of money you are asking for:

High valuation

Great team - with previous experience of business and of working together (serial entrpreneurs).

A proven market - hard evidence - not just assertions.

A well researched developed product - with secured intellectual property (patents) - and a proven market. Better still if you have a fully functional prototyle or some early trial customers who are prepared to endorse you and your product.

Mid level valuations

One team member is solid - others not so convinving - perhaps part-time, not put their own money in or not technically convincing.

No hard evidence of the market place - relying on metaphors, instinct - but perhaps experience and some endorsements verify the potential. In other words we can see a "market" but perhaps not "customers".

Product has been developed to an extent, but needs resources to get it to prototype and get patents sorted out.

Low level valuations

The idea is no more than a good idea

The inventor/entrepreneur seems to have potential but is unproven - is a first time entrpereneur

The investor is likely to be taking a high level of risk with the early stage idea

The product has only just moved beynd a conceptual level

The investor feels they will have to do all the work to get the product underway because of the lack of experience of the entrepreneur

No valuation what so ever

The pitch was rubbish

The product is whacky

You argued

The market is completely unproven - no sight of customers

It looks like a lifestyle business that is better run from a bedroom or kitchen

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