Boom times are here! Well, for entrepreneurs and the folks who support them. We are living through easy-money times. So much capital, so much access...
You know, one of the biggest misconceptions out there is that ideas and products determine the likelihood of success in terms of startups. Thanks to the launch of apps like Wefunder and Republic; and of course changes in legislation, the average Joe today finds himself in a position like no other: The opportunity to invest his hard-earned dollars (for a potential return) in private startups.
In fact, if you ask earlier investors in Coinbase or Peloton - when these guys were just small private startups - and those early investors will tell you how their lives were forever positively changed once these firms went public. Investing in private startups can be just the shot of adrenaline your portfolio needs.
However, it is incumbent on founders - and to a lesser degree, investors - to look out for a few things during the evaluation process of most opportunities to invest in new (unproven) companies.
#1:The company you keep
My fellow entrepreneurs are best served when we make these and a few other points the foundation upon which our planning and presentations are built. The first of which, in my humble opinion, is the "people" part of your company.
Heavy reliance on your proposed product and/or service leaves you and your organization vulnerable to one of the key elements of failure in the startup world. The number one rule in my opinion is not to focus so much on whether or not your company's proposed idea or product is a great one but on whether the folks involved possess the experience and attitudes to pull off launching a profitable company.
Ask any experienced Angel investor and they are sure to tell you that their worst deals came as a result of a people problem and not necessarily market conditions, funding, or any of the factors most folks would think.
#2:Exit Stage Left
I know folks don't like to hear this - and by “folks” I mean entrepreneurs - but you have to have an exit strategy. Or at the very least, a plan to create liquidity for your backers.
These days, one does not necessarily have to go the IPO route or be acquired by a larger firm to give investors options to cash out of the deal. Digital tokens are an option- and a few others.
Keep in mind that anyone who hands you a check to go out and build your firm will - at some point - want that check back plus a return if all goes well. You need to have a realistic, sincere, scheduled exit strategy as part of your presentation to new investors. I will leave it up to your imagination to devise a plan for one that meets your unique needs.
#3: Sales sales, sales.
Anyone who has built a successful business completely understands this. Your bottom line is the most important thing in your organization. Not goodwill, not diversity or any of the fancy stuff folks tend to focus on these days.
Sure, you can take steps to hit most of these marks as your organization grows. For now, especially as you pitch your company- or should I say yourself and/or your team- to investors, it is crucial that you have a solid, sustainable plan to get your products and services out into the hands of paying customers.
There are many, many avenues for sales and marketing these days. I am a big fan of direct sales. The reason? You get the benefit of growing the bottom line at a fraction of the cost and also a chance to glean valuable Intel from your customers- firsthand.
That being said, your investment pitch should focus on telling folks how you are going to use the funds to go out and generate revenue.
The idea is to plan to take steps and communicate said plans to make your company worth more than when folks made their original investment. And there is no better way to level up - as the kids say- than growing your sales/revenue figures.