Resorting to investors is a widely used strategy for inventors. Investors have funded numerous entrepreneurs that have good ideas and presented good business plans. Those that had patented or patent pending inventions, copyrighted technologies, and/or had strong trademarks in addition to business plans were given more considerations for funding. But, you would also want to have something for leverage when that times comes as suggested in the previous post: Funding An Invention.
20% of something vs. 100% of nothing
If you should ever resort to investors, be prepared for the majority of your company’s shares and profits to go to the investor(s) as conditions for funding. It may be as much as 80% for a specified period of time, depending on the type of project (a service, manufacturing, or high-tech) and at what stage it is: patent pending, seeking investors, or being marketed. However, you should consult attorneys before meeting prospective investors.
When it’s the investor(s) that assume the risks for launching a venture it’s the investor(s) that will be in control (if only by dictating the conditions) to insure receiving the expected return on the investment(s) in a specified period of time: maybe more than 300% in five years. Having an IPO (initial public offering) has proven to be an investor’s expectation in several instances.
Accepting investments could even mean that investors may be the team that runs the company. You could also be apart of the team and maybe in a lower capacity than decision-making. This level of decision you should make based only on your attorneys’ advice.
Investors being in control is not necessarily greed, it’s good business sense. Even if you are the most creditable entrepreneur but have no experiences in bringing a business to profitability, investors will not just hand over substantial sums to you and say “do your best”. They are going to know details for how the funds are used, how they would get the best returns on their investments, and therefore have considerable control of the company. So, be ready for the question: how much would you be willing to give up?
Have in your resolve that you have come to that point in time by your God-given fortitude to start a business and by your innate tenacity to be unrelenting when you might have felt like giving up. Also, consider an old country adage: “Your longest way around (continuing your current course of action) may be your quickest way home”. With that in mind, maintain an undauntable posture.
Let your countenance be positive but show that you would rather continue on your own at a slower pace than to accept less than what you think is fare. Postpone a decision until you have conferred with your attorney.
It is conceivable that the value of your business would soon come to the point that an investor would be willing to invest more than the initial offer(s) for a smaller percent interest. Consult your attorney regarding this possibility. Also remember that if one investor sees potential return on investing in your company, others would too. Therefore, do not be discouraged if the first experience is futile.
SUGGESTION: for Inventors
Watch some of the episodes of ABC Network’s Shark Tank. Seeing entrepreneurs/inventors presenting ideas to investors would give you some ideas of what investors expect in comparison to what is stated above. Decide if their demeanor justifies the name, Shark Tank.
The day could come that I would petition the “Sharks” for funding. If it does, I would have a presentation that would be as irresistible to them as blood is to an actual shark. Namely, it would prove the potential for enormous returns for relatively small investments.
They would see a technology too simple to be imitated by reverse engineering: finding another way to accomplish the same tasks. Unlike search engines and other mediums, it could assure local businesses of having comparable visibility on the Internet as the Fortune 500’s for less than $25/mo. This would be leverage for negotiating.
The guidelines for funding vary amongst investors. The image below links to the Top 100 Venture Capital Firms. Each investor has a specific focus for funding and requirements. Contact information is on their respective websites.
