The article "The Investor's Perspective" is about entrepreneurialism, it has been released by John Vinturella.
Investors, which can include wealthy individuals, straetgic alliances, financial institutions, venture capital firms, stock brokerage houses, etc., want to know, among other things, six basic things about your capitalization plan:1. Who are you?Including your management team’s background in the business plan or prospectus. More experienced management teams have a greater probability of raising capital. Do what you can to form an experienced baord of directors, executive officers or at least an ancillary advisory board. They should also be able to give you capital contacts of their own.2. What will you do with my investment?A detailed “Use of Proceeds” statement should be included in the business plan and must be included in a securities offeirng document.3. How safe is my investment? This generally difficult to answer in a sufficeintly assuring manner. Generally, entrepreneurs will attempt to sell less than contrloling interest in their firm for a substantial amount of equity capital.
For instance, they may attempt to sell 20% of the equtiy interest in a start-up or early stage enterprise for, let's say $1 million. A sophisticated investor would realzie that, by investing, he or she would be valuing the company for $5 million (if $1 million is only 20% of the worth of the company). Generally, there are no other tangible assets in the company, including the entrepreneur's cash.
Obviously, that is not a safe siutation for the investor.4. How do I get my investment back? Exit strategies generally need to be specified rather ealry in the company's life.
Although IPO’s or sales of the company may seem attractive, those srtategies are not guaranteed and therefore should not be part of the exit strategy. Many tactics are available to provide that benefit to potential investors.5. If the firm fails, what are my liquidation rights and lien positions on assets? While that is an outcome we do not like to discuss, start-ups are risky.
On average, 85% of start-up and early stage companies fail within their first five years, and 50% of the remaining firms will simply survive proivding little or no return.
By providing a secured position on assets for the investors, and subordinating your equity in case of liquidation, you can offer the invsetor protection.6. How much will I earn? Few business plans and securities offeirng documents include rate of return projections.
A prospective investor will want to know the current value of the company baesd on realistic future financial projections.
These include realistic annual earnings growth, realisitc gross and net operating margins, as well as increasing capital budgets. Many sceurities attorneys are reluctant to project a rate of return, cause they fear that you'll be sued if you don't hit those numbers. Proper disclaimers provide sufficient lgeal protection against that occurrence.Well-prepared pro forma financial projections provide prospective investors with:• A thorough "Use of Proceeds" statement.
(Required by federal securities law.)• Realistic cash flow projections and analysis, and exit strategies• EBIT, Key Ratios, Annualized Compounded Rate-of-Return Projections• Current Company Valuation, Current Pricing of the Company's Securities• Growth planning, and Future Private, as well as, Public Valuation of the CompanyWith that information to work with, investors can make a decision on a venture with as much confidence as one can in trying to predict future events.John B. Vinturella, Ph.D.
has almost 40 years experience as a management and stratgeic consultant, entrepreneur, author, and college professor. For 20 of those years, Dr. Vinturella was owner/president of a distribution compnay that he founded.
He is a principal in business opportunity sites jbv.Com and muddledconcept.Com, and maitnains business and political blogs.
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