In my post, “Who will finance your ‘Great Idea’?” we identified where the required finance for your venture/idea could potentially come from.
The person or entity interested to finance your idea will require the answers to the following questions: (Wickham, P.A. (2004) Strategic Entrepreneurship. FT Prentice Hall)
1. Is the venture of the right type?
Most investors specialize in certain types of businesses, therefore they would mostly be interested to stick to the industry/sector in which they have experience and knowledge.
The investor will need to make sure that the venture is the right business for the investor.
2. How much investment is required?
This is crucial both for you and the investor. The investor will need to know the amount of money required. E.g. Retail banks will offer loans up to tens of thousands of dollars. Venture capitalists on the other hand will not be interested in investing anything less than about $500,000. A market flotation is usually concerned with raising at least $10,000,000.
The key question here is, is the investor really the right source given the level of investment needed?
3. What return is likely?
The ROI (Return on Investment) is the likely financial outcome of making a specific investment. The calculation of the ROI is something that the investor will want to know along with how reasonable the ROI is given the potential for the venture and its management team. Their decision to invest will be based on the assessment of the returns in relation to the risk and how this opportunity compares to others available.
Note: Venture capitalists take more risks than retail banks. [click to continue reading…]
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