Quenstions an investor may ask.

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~J~

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Questions an investor may ask.

Has anyone setup their own business with the help of an investor, or had an idea funded?

Got a meeting on Thursday with a potential investor in an idea I have.

I've prepared a 'brief' of answers that they may have, covering things like: Costs, Wages, Market analysis, Demand, current competition, etc.

Was wondering if anyone knew of questions they may ask so I can at least get the information that's needed.

Did try to look on the Dragons Den website for ideas but nothing.

Any ideas?
 
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Do you have a business plan? That is one of the primary things I'd expect to see as an investor, sure within have the points mentioned but you should also cover other potential revenue streams, what contingency plans you have if it isn't initially as successful as you hoped etc. Obviously don't make it look as if you expect to fail but assuring the investor that they will be covered is more likely to get you cash than not. Primarily you are trying to convince them why an X% stake in your company is worth £XXXX so think about what you'd want to know before spending your own money.
 
There are three key things you will need to be able to answer.

1) Are you capable of running a business? (so details of costs, market demand etc are needed here)

2) What are you going to spend the investors money on? (where within the above do you not have budget for that will provide a return)

3) How will the investor get there money plus more back? (clear forecasts and growth)

Most important thing is do not say anything which is not true. Stick to the truth and be honest with the investor. Investors look at two things - the product and the person. You can have a brilliant product but if you look like a junkie chances are you will find it hard.
 
I'd make sure that you have projections for future years and also ensure that those projections are realistic and not inflated to try and win over the investor as he/she'll see through it.
 
Well I've a business plan marked out (didn't realise just how involved there were!!), with forecasts for the next 5 years.

Capable of running the business - yes, although it's not so much a business, more of a product that I need the investment for (to cover my salary while I'm developing it, and any additional costs)

The "How will the investor get their money back" is one question I'm kinda stuck on. I don't obviously wanna say "You'll get it back at xx% of income received" as this could lead to other questions about if I get a minimum return how I'll live myself AND expect to pay back the investor, so I'm a bit stuck on that one.
 
I doubt an investor would fund your salary.
Not being able to give a good idea of how he/she is going to get their money back wont help either.

You need to be absolutely solid and clear in your mind on all of this before you meet him/her.
 
That's the problem Oblivious, I'm been too honest!!! :p

There's no 'great costs' involved (no machinery, premises, etc) just a niche in the market which I need to get in quick and establish before it's flooded, hence why I wanted to know if some will pay a salary for a few months rather than fund the purchase of equipment. The latter of course a more viable option as they could sell said equipment to recover some of their costs but their can't recover my time.

Ouch.
 
Don't wanna put your spirits down but I doubt they will invest then, as you said if it goes pete tong they don't actually have any assets they can recover as their money went on your wages ;/
 
Eriedor said:
Don't wanna put your spirits down but I doubt they will invest then, as you said if it goes pete tong they don't actually have any assets they can recover as their money went on your wages ;/
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No, you're not putting down any spirits, I'm after some solid constructive answers and you're 100% right in what you say. I'm just trying to see if from their point of view rather than my own (naturally I can't see a problem but then I wouldn't do would I) :)
 
You say it's a product for a niche market, make sure that absolutely no one can copy your idea.
 
^^Indeed, have you looked at getting any sort of protection for the product? The investor would be more likely to be impressed if -as Zefan says - no-one else could copy your product.
 
You say it's for a niche market - how niche - how much was spent in that area last year?

Is it scaleable?

What sort of margin are you looking at?

Most importantly, IMHO, is there no way you could go without a wage for the first xxx amount of time. I know this may be impossible, but going to an investor asking for a wage is never going to be great.

If you've got the product protected can you not just go get orders from shops etc - if you then need the money to get the stock built you can take those orders to a bank and any will give you a business loan based on them. If you've already tried to get orders and failed then this is a problem in itself.
 
fini said:
You say it's for a niche market - how niche - how much was spent in that area last year?

Is it scaleable?

What sort of margin are you looking at?

Most importantly, IMHO, is there no way you could go without a wage for the first xxx amount of time. I know this may be impossible, but going to an investor asking for a wage is never going to be great.

If you've got the product protected can you not just go get orders from shops etc - if you then need the money to get the stock built you can take those orders to a bank and any will give you a business loan based on them. If you've already tried to get orders and failed then this is a problem in itself.
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Yes it's scaleable, by that I mean there is a core product which can be changed to suit a particular market (I have 3 prototypes from a core product).

Margin, I 'could' potentially be looking at about 95%, there are no product costs involved, it's a digital product (software) so if you took away bandwidth charges for downloading as well as hosting fees, then the turnaround could be quite high.

I 'could' go without a wage, but it's something that is a last resort.

The 'shops' outlet, again there's a possibility there. I have 3 'places' (not shops) that have shown an interest but would obviously like to see a finished product before they are prepared to discuss the possibility of 'stocking' the finished product.

Like I said, there are zero costs other than advertising and marketing, bank loan is another possibility.

As for the niche, I'd say approximately over £200k was spent in the area last year for a product that is popular in the states but hasn't really took off over here yet.
 
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~J~ said:
Margin, I 'could' potentially be looking at about 95%, there are no product costs involved, it's a digital product (software) so if you took away bandwidth charges for downloading as well as hosting fees, then the turnaround could be quite high.
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You should have these figures over at least three years (5 years preferable)

1. turnover
2. gross profit
3. net profit

It's not hugel interesting how much profit you'd make if you strip away costs like hosting etc if you're going to need to pay for these (ie you could be turning over 100k, with a net profit of -10k!).

~J~ said:
The 'shops' outlet, again there's a possibility there. I have 3 'places' (not shops) that have shown an interest but would obviously like to see a finished product
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Why don't you have a finished product? Investors would much rather invest in something that is finished rather than in a tech-demo. People showing interest means nothing - they could just be being nice - you need to try to get orders on a finished product (even if there just trial quantities).

~J~ said:
As for the niche, I'd say approximately over £200k was spent in the area last year for a product that is popular in the states but hasn't really took off over here yet.
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Don't talk in approximates - it makes it look like you're making it up off of the top of your head. Try and get the hard figures - they'll be available somewhere. If a similar product hasn't taken off here than why not? Is your product even protect able if there is a similar product already (chances are it's not)?

Do not take anything to an investor that is not protected if there is even a potential you can protect it.
 
Nice one fini, will calculate the figures for turnover, etc over three years. Only did estimated profit over 5 years so will do those this afternoon.

I have a finished product in terms of a 'core', so the investor can see a finished product but I also have prototypes that are geared towards a specific interest to show how easily the core can be adapted should an interest be shown somewhere else (possibly sounds vague but I'm sure you understand why).

The "don't talk in approximates" I again accept is a damn good response. How would I be able to get hard figures though? Let's say I was created a new operating system to beat Vista, where would I go to acquire the final sales that Microsoft have made? I'm a tad confused over that one.

Have found out why the similar product didn't take off and have changed it for what I believe to be better based on professional and user reviews from last year. The product I believe can be protectable because in how it works (again, hard to explain without be giving too much away).

Definately somethings for me to think about fini, cheers.
 
~J~ said:
How would I be able to get hard figures though? Let's say I was created a new operating system to beat Vista, where would I go to acquire the final sales that Microsoft have made? I'm a tad confused over that one.
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Sales figures etc will be in the company's (in this instance Microsoft's) yearly report - all companies that have gone public, IIRC, have to do this.

~J~ said:
The product I believe can be protectable because in how it works (again, hard to explain without be giving too much away).
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Get what you can get patented patented. It's a long process, but once you start it you can talk to anyone about the product. What you want is a European patent to get you started. The fact that you've modified (in effect) an existing product to reach a final product does suggest that there may be ways to get around any patent you may be granted, but it's still better to have it.

I'm starting to get the feeling the invention might be software based. If I'm wrong then just forget about this next paragraph. If I'm right then be aware that software isn't patentable in most cases. In the EU, you can only patent software that is linked to hardware to create a novel outcome - ie where the software is neccesary for the running of the hardware. An example would be if I created a proper 3d display - the software (in this instance firmware) that would be necessary to get the screen to work would be patentable. If a patent isn't possible then you'll just have copyright and trademark (along with design mark) protection in your invention. These don't need to be registers and become active through use. They don't offer as good protection though and, as such, the idea would be worth less.
 
Have you got a NDA for the potential investor plus anybody else you show?

Just rich people didn't get rich playing nice. Would have to see your ideas stolen.
 
Cheers fini, they have an annual report as a PDF so will use that to gather information.

Yeah I knew about the EU law, hence why I deliberately avoided the "it's ok I've patented it" response, you're almost right with that the software is required for the hardware.

Fini you've been a big help, thanks, it's really appreciated.

*edit*

Oblivion, all taken care of as best as I could.
 
A business is like an organism, money is it's blood, its' main processes it's internal organisms. All you have to do is show that the organism is balanced and healthy and can fulfill a role in business.

Even if it is niche, it can still provide a service... even if it has competition it can still beat them on price / quality / reliability / quantity / scalability... even if it can be copied, the copiers have to stick with it step by step, and your company has someone important - you - that they won't be able to replicate, so they will only ever be able to trail in your footsteps, not carve their own way.

Innovation is a process, it isn't static....
 
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