Taking classes at Queens University, I’ve run into a lot of people who have innovative ideas that they’re looking to leverage to make the next big startup. Innovative ideas are great. They’re the foundation of any successful enterprise. But that creativity needs to be balanced with solid business sense.
One of first steps of monetizing an idea is getting other people to invest in it. This may seem like a no-brainer, but it begs the question: what is a company actually worth to investors? Monetizing a future business is a delicate dance between investor and founder because the two may not see eye-to-eye on what the value of your company is.
Here are some tips for young entrepreneurs out there:
Where Are You, Realistically?
For any investor to get a good grip on your company they need to understand your vision, but they also need to have a realistic idea of how much work is done – or still needs to be done. Ask yourself, what stage you are in? Here are some questions to consider:
- How much thought and time have you put into your business?
- Do you have a functioning product/service or is it still in the prototype phase?
- Do you have a partner/employees or is it just you?
These are all important questions to ask and will essentially be your bargaining chips with potential investors.
Show Me the Money
How much money do you need to get off the ground or to get where you want to be? A good rule of thumb to follow is to have enough money for three “experiments” (additional products, new location, equipment, marketing) and for six months of runway. This will be a good cushion to push you through before you, hopefully, start pulling a profit.
Marketshare – Competition May Help You
Any investor worth his or her weight, quite literally, in gold will be looking at the current market to see how other businesses like yours are out there. They will be looking at how profitable they are, what their success has been, and how much competition is out there.
At this stage in the game, competition can help you. If there are others out there that have had success in your field, this significantly lowers the risk in an already risky investment.
This is another key item that will play into the value of your company. Are you an industry superstar or is this your first go at running a company? Investors will feel better backing someone who has an impressive track record. The more successful you have been in your field or in business, the more money you and your company is worth – so don’t sell yourself short! You are the first asset of the company and your hard work and ideas are ultimately the lifeblood of the company.
Does Your Startup have “10Xer” Potential?
You might be asking yourself what a “10Xer” is and rightfully so. This is a term angel investors often use to refer to a company’s potential to produce 10 times the initial investment. Most investors are well aware the at least half of the startups they decide to fund will ultimately fail, maybe before they even break even. In order for investment firms to make any money, they need to bank on the fact that 1 out of 10 investments will yield at least 10-30 times what they originally invested to be able to make any money. With that thought process, a potential investor will most likely invest in a company in the first place if they believe you have 10X potential.
Hit the Ground Running
Now that you have a pretty good idea of where you stand and how much your company is potentially worth, it’s time to get out there are start seeking out investors. Make sure your pitch is rehearsed, you back everything up with facts, and you can generate FOMO (fear of missing out). Generating FOMO is especially important because no investor wants to be kicking themselves when you become a 10Xer they didn’t invest in.
For more info on startups and valuations, check out Gust and Investopedia.