What can I expect investors to want in return for their investment?
I am looking for investment on my product. We are ready to go, but ran out of money! I am looking for an investment or business partners to get my invention off the ground. First, what can I expect them to want in return for their investment? What % would an investor be looking for on an investment of $100K over 3 years?
The thing that can be tricky about this, is essentially as a "new invention" you're providing a new means of providing a new type of value that absorbs and distributes resources in it's own unique manner........ which also provides investors a new mechanism to multiply their money through........ So what they expect from you is to show them step by step how their money is going to generate more money from start to finish and the mechanics behind how they'll be plugged into it.......
So all in all it's not about what THEY expect or what's "standard"...... it's about you being clever enough to concoct a bountiful financial mechanism that genuinely feeds their pockets some type of sustainable way with every sale of the new invention. Find a way to make it so "worth it" that there's absolutely no reason to say no while still stacking up a pretty hefty cut for yourself so everybody is happy.
I see that Karen's answer dredged this up from the primordial ooze of questions from the distant past. You are one of the few question askers that has bothered to take the time to setup up your profile and SHOW readers what you're up to. And since you did so, I checked your bits out. Your idea looks good! There's the usual set of question that arise, but imo you are responding to a problem with a great looking solution!
Hopefully in the time since you asked the question you have gone off in the crowdfunding direction (gofundme, etc.) I'm not seeing why you need a traditional investor or even a chunk of change from one person. Why not do what Bernie Sanders did? 40$ each from a gazillion people gave him a pretty well funded campaign. The 'Bubl camera' is another great example of crowd funded tech gizmos that have raised their funds from the 'crowd' and gone off to their planned upon next level.
If you're still around and still looking at this idea, I think you should drop traditional investing like a bad habit and go with an appeal to the 'crowd', some of whom are going to be SUP'ers (like myself) that would recognize what you have as a good idea for what they do. Much easier to put skin in the game from a bunch of your peers, all of whom would become your first set of customers, that trying to convince some putz in a suit that you're a worthy investment.
good luck! I think you have a great idea!
This is a hard question to answer without understanding how much you have invested yourself and what the product is (consumer versus technology) - and what value would be put on your business today.
If an investor is going to put in 100K - it isn't just the return it is the equity amount they would take as well. If the product hasn't got any revenue and is worth nothing and they put in 100K and you have put in 10K - then they own 90+% of your company most likely. Most investors that we have worked with want out in 3-5 (MAX) years, and want anywhere to 3 to 10 times return depending on the industry. Also is dependent on the type of investor. An Angel Group we know that focuses on high-tech wants to be out in 5 years and is looking for 3 times minimum up to 10 times return.
If a business partner comes in and puts in all the money - then you are looking at a similar situation where you would own very little of your company depending on what you have put in and what "value" is put on the business. Unless you have some high-tech invention that someone sees is going to skyrocket - it is very hard to get investors to buy into the risk if you have not made any sales.
You might be better in looking at a 100K small business loan depending what you want to use it for.
Investors or lenders will look at what the investment is for with a fine tooth comb before giving you money.
While you don't say so, my assumption is that you don't have any customers yet and you need capital to go get them. If so, you have the old chicken and egg problem. Without customers, you really haven't proven your concept and without that, investors will not invest (unless, perhaps they have same surname that you do). This is a common mistake that entrepreneurs make - spending all their time and money on building the product and then not having anything left to market it.
So, stuck with that problem, what do you do? Go find potential customers. Get them using the product with the promise that if they find it does what you purported it will, they,eventually, pay you for it.. Find potential partners, who might be able to help you sell your product - like a larger company, not a competitor, but selling into the same market. Just a couple of thoughts. Just don't spend a lot of time thinking that because you're asking for a small amount of capital it will be easy to come by. Usually, the lower the amount, the harder it is to raise. So, get creative and go find customers. Investors will be easier to find, once you do.
Hope this helps.
"It isn't the return ON my money...it's the return OF my money that worries me most" - Will Rogers (paraphrased)
There are 3 ways, and only 3 ways to fund a business: 1] Sell equity (VC's); Secure debt (must have assets); 3] Sell stuff (hard to do without inventory or performance history).
Find (develop) a business plan with a marketing strategy that an investor can understand and believe. It is his "perception" of risk VS return that will determine his appetite for investment. Profits will take a back seat to security for the investor in anything new (business, technology, innovations).
Looking for money, investors, is a sales process. A bank is the last place to go unless you have adequate assets to put up as security. You must talk to as many potential investors as you can find (hundreds, maybe thousands) in order to find the one(s) that can appreciate your vision, support your mission. It's a numbers game. They have to first believe in you and your vision second. And remember the decision to invest is an emotional decision that then goes looking for rationalization to move forward (it's the same for all buying decisions).
Dana a very scientific answer is given Mr. Paolo Borchetta, though investors in layman terms wish to double their investment in three years.Therefore if your project offers such returns you are sure to attract investors.
Dana. An investor would be looking at a % shareholding in the company, however there are different type of investors, I suggest you look into the VCgate database, you can get in on line through a 90$ one off subscription.
In order to get an investor attention, you would need a good business plan with some clear and reasonable economics, including the expected ROI (Return On Investment) calculation, or better an IRR (Internal Rate of Return) based on the actualized cash flow of the project (IRR Max when NPV = 0). This is going to be a %. This percentage is usually compared to less risky (or no risk) investments return and some other risk, volatility and firm size factors that determine what is called the Weighted Average Cost of Capital (WACC), your IRR should beat this WACC %. This will tease investors into looking at your opportunity.
After that how much % they want, is up to negotiation however remember that you are asking for financing of the opportunity against some work already done by you (idea, development, etc.) this can be monetized to a value "X", how this compare to the 100K required over three years? (X$ % vs 100K%)? The 100K are required for what? I believe to to finance the Working Capital over three years. You might think in terms of I need 30K$ now, the moment you start, you generate income, when the cash flow becomes positive so that you are able to self-finance the business without external help? Without financial projections it is difficult to answer however a general principle is that you might not need all the 100K$ right now, after all you are stating that you are ready to go and three years is a long time without generating revenues and a positive cash flow to finance your working capital requirements.
As Ulrich said, investors want a piece of the action, generally a share of the firm. The more they invest, the larger the share.
And keep in mind, if you fail to meet your obligation and deadlines, known as ratchets and milestones, they can and do take the the company over.
+ 20% p.a.
Most probably he/she would want to get part of your earnings, shares of your company, distribution rights and/or patents.