How is this for an inventor's fantasy? You pick up the phone and hear "We understand you have an interesting invention. We would like to invest. Please, take our money." The operative word here is fantasy. Having done the hard work innovating and inventing, now is not the time to rest. The next phase of your success is monetizing your invention - reaping the rewards of your creativity. Here are five steps that will distinguish your from the pack, get through the process more efficiently and ultimately secure the capital you are looking for to succeed and prosper.
UNDERSTAND NEEDS AND WANTS
Know the difference between what you need and what you want. Know the amount of money you need to reach your immediate goals and stay focused on that message. If you do this you will be off to a great start, unlike those individuals who go into the market with a "wish list" of how much money they would like to raise. An investor is interested in knowing that you have command of the money situation, are focused on the next immediate milestones and are reasonable in your capital expectations. There is no bigger turnoff for a professional investor than hearing: "We are raising $x, but really only need $y." Know the difference and you'll be that much closer to success.
PREPARE A TWO-PAGE BUSINESS SUMMARY
Imagine that a close friend wants your help. What is more effective - a two-minute summary of their needs, or a 20-minute ramble? A two-page summary allows you to cover 10-15 topics with a few sentences on each point. This summary should not include sensitive financial information, but act as an overview of your business intentions and the investment opportunity that can be shared with everyone. After reading this two-page summary, a prospective investor will either be more interested in the opportunity (a good thing), or less interested (also a good thing, because it will save you time).
Be sure to include these topics: Summary of business opportunity, summary of the invention or innovation, business segment, competition, market need, ownership structure, potential revenue or size of the market, contact data, amount of money desired and milestones reached to date. Do not include anything that you do not want unfriendly eyes to see. While you may request an NDA for a summary, it is not practical.
HAVE A DETAILED BUSINESS PLAN AVAILABLE
While having a detailed business plan is a basic necessity, the key is not to bring it out before you have genuine interest. It is good policy to provide a detailed business plan only to those parties who have read your two-page summary, have expressed an interest in learning more, are capable of writing a check, and will sign a Non-Disclosure Agreement to protect the confi dential information you are about to share. Get the NDA after they have the summary and before you provide important details.
CONSIDER HIRING OUTSIDE PROFESSIONALS
Raising money takes a lot of time and effort. Hiring a professional to do this for you can make sense but is not required. In fact, it can lead to disaster if the people you hire cannot give your project the time and attention it deserves and are not able to bring in the money you need to raise. Be realistic and consider which scenario is most likely to lead to a successful outcome. If you are comfortable taking the lead and speaking in front of people, you may the best person to lead the effort.
If this activity is not for you, talk to lots of people and get several referrals. Spend significant time. This is not a time to rush through. Remember, you want to date first before committing.
LISTEN CAREFULLY TO FEEDBACK
Absorb market feedback and continually make adjustments in written materials, verbal presentations and your business model. Listen to people you meet and take note of their questions. Questions indicate areas where the communication is not clear, not understood or not accepted. Your business proposition and opportunity is competing with dozens or hundreds of other investment opportunities. You have two ears and one mouth, so use that as your guide to maximize the effectiveness of your time in front of prospective investors.
Incorporate the answers to their questions into your verbal presentation, two-page summary and detailed business plan and you will be proceeding much more quickly toward a "Yes."
If you can execute the above five steps, you will be well prepared to successfully monetizing your invention, unless you make a basic mistake regarding valuation. The valuation topic sinks more fundraising efforts than any other single issue.
HERE'S WHY:
VALUATION DO'S AND DON'TS
Which is likely to gather the most interest from qualifi ed investors: an inflated valuation or an attractive valuation? Which scenario is likely to gather the most investment offers? Which scenario is likely to possibly lead to a competitive situation that bids up your valuation? An attractive valuation will get you in the door, get the interest of the most number of people and often leads to increased valuations after investors put in the time to become familiar with your opportunity.
Consider real estate. It is a wellknown fact that overpriced properties sit on the market while competitively priced properties sell. It is also known that overpriced properties often chase the market below what they would have sold for initially if they had been competitively priced. Inflated valuations are an obstacle to raising capital for all the above reasons, and generate quick "not interested" responses. Avoid inflated valuations unless you have the luxury of not closing the financing. Be reasonable. You can always change your mind.
If you apply the above five steps and start with a realistic valuation you'll be more likely to reach a successful conclusion in your efforts to raise capital.
